Institutional Investors Attempt To Force Banks To Buy Back Mortgages And Mortgage Backed Securities (MBS)
According to a New York Times article by Nelson Schwartz entitled “Banks Brace for Costly Fights Over Mortgage Mess”, there are several firms that have been sued by institutional investors to force them to buy back billions of dollars of mortgages and mortgage backed securities that allegedly failed to conform to underwriting standards. A suit was brought by the Maine State Retirement System and others against Bank of America but it was dismissed by a federal court in California, highlighting the significant challenges other plaintiffs will face. Other similar suits were filed by Schwab, PIMCO, Federal Reserve Bank of New York and the Federal Home Loan Bank of Chicago against the likes of Citigroup, Wells Fargo and Bank of America. There has been much criticism in the industry for pursuing foreclosures without proper paperwork or with signatures by “robo signers.”
Naturally, the response given by Bank of America’s attorneys was that the claims made were “utterly baseless” and due to the economic downturn rather than problems with how the mortgages were sold or serviced.
The Wall of Worry for Wall Street is that these lawsuits will cost tens of billions of dollars in a lengthy battle for the banks.
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