JPMorgan, Bank of America hit by new legal suits
JP Morgan Chase and Bank of America were hit with new suits over subprime mortgage securities purchased by a German bank which nearly collapsed from losses on the investments, court documents showed Friday.
Sealink Funding, which manages assets once held by Germany's Landesbank Sachsen, filed suit in a New York court over losses on $4 billion on packaged mortgage investments -- $2.4 billion from JP Morgan and $1.6 billion from Bank of America's Countrywide unit.
The residential mortgage-backed securities (RMBS) were fraudulently marketed as low-risk, Sealink said in the court filings.
In fact, many of the underlying mortgages have proven poorly documented with an "astounding" rate of default, it said in the suit against Bank of America.
"The vast majority" of the RMBS "are now considered 'junk'," it said.
"The originators whose loans collateralized the defendants' RMBS purchased by Sealink did not employ rigid underwriting processes and were among the worst culprits in the subprime lending industry," it said.
Sealink asked the court for both compensation for the losses and punitive damages against the banks.
It was the latest of a number of investor lawsuits against big US banks over losses on mortgage-backed securities that sank in value in the collapse of the US property bubble in 2007.
Bank of America is the biggest target of the lawsuits for its 2008 purchase of Countrywide Financial, once one of the country's biggest mortgage lenders and since shown to have issued hundreds of thousands of sub-par and poorly documented home loans that were packaged into RMBS.
© 2011 AFP