Investors Sue BofA, Citi, Wells Over Mortgage-Backed Securities

NEW YORK (Dow Jones)--Growing numbers of mortgage-backed securities investors are taking a legal cudgel to banks that sold them souring investments.


Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) are facing multiple lawsuits over alleged misstatements or omissions in their underwriting of residential mortgage-backed securities, the banks disclosed Friday in quarterly regulatory filings. The suits were filed since June in various state and federal courts, and seek to recoup losses from investments in mortgage related securities.

Bank of America said in its filing that it faces suits over more than $375 billion in mortgage-backed securities.

Institutional investors are suing a multitude of banks. The Federal Home Loan Bank of Chicago filed suit in state courts in Illinois and California against a total of 17 institutions, including units of H&R Block Inc. (HRB) and Barclays PLC (BCS) last month. The Federal Home Loan Bank of Indianapolis, using similar language, sued 10 institutions, including Citi, J.P. Morgan Chase & Co. (JPM) and GMAC Mortgage Group, a unit of Ally Financial Inc., in Indiana state court last month.

Cambridge Place Investment Management, a $3.1 billion manager of asset-backed debt, is suing a dozen banks including Citi, Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and J.P. Morgan in federal court in Massachusetts.

Charles Schwab Corp. (SCHW) filed a suit against units of a dozen banks in Superior Court of California in San Francisco, seeking to rescind its purchase of mortgage-backed investments or be paid damages for losses.

Banks that sold investors mortgage-backed securities, or that underwrote the mortgages wrapped into the securities, are facing a growing legal firestorm as those mortgages sour. Banks have downplayed the financial risks, citing steep hurdles the investors face in winning their suits.

Analysts have generally estimated banks could lose $26 billion to $55 billion if forced to buy soured mortgages back from private investors. J.P. Morgan fixed-income strategists said such losses could climb as high as $120 billion industrywide.

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