Bloomberg News

Bank of America’s Countrywide Sued by Sealink Funding

September 30, 2011

(Updates with Bank of America comment in fifth paragraph.)

Sept. 30 (Bloomberg) -- Bank of America Corp.’s Countrywide unit was sued by Sealink Funding Ltd. in New York over $1.6 billion of residential mortgage-backed securities the fund purchased between 2005 and 2007.

Sealink filed the suit against Countrywide in New York State Supreme Court yesterday, seeking unspecified compensatory, rescissory and punitive damages. Sealink is a fund created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed.

“Countrywide was an entity driven by only one purpose --to originate and securitize as many mortgage loans as possible into” mortgage-backed securities “to generate profits for the Countrywide defendants, without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” lawyers for Sealink said in the lawsuit.

Sealink filed a similar suit yesterday in the same court against JPMorgan Chase & Co. over $2.4 billion worth of residential mortgage-backed securities purchased between 2005 and 2007.

“This appears to be another sophisticated investor looking for someone to blame for investment losses suffered due to a downturn in the economy,” Lawrence Grayson, a spokesman for Bank of America, said in an e-mail. “We will vigorously defend this lawsuit.”

Credit Crunch

SachsenLB, a state-owned lender, received a 17.3 billion- euro ($23.2 billion) bailout in 2007 to support an investment vehicle that ran out of funding amid the credit crunch. Saxony agreed a week later to sell the bank to Landesbank Baden- Wuerttemberg to avoid closure. As part of the agreement, the state guaranteed to cover as much as 2.75 billion euros in possible losses from investments backed by assets including U.S. subprime mortgages that were placed in Sealink.

In separate lawsuits filed yesterday in New York state court, JPMorgan Chase and Barclays Capital Inc. were also sued by investors, accused of misrepresenting the quality of the loans underlying their securities.

Barclays was sued over the sale of $123 million in mortgage-backed securities to HSH Nordbank AG, a German lender. JPMorgan was sued by LBBW, which purchased more than $500 million worth of mortgage bonds, according to the complaint. Lawyers for HSH Nordbank said in the suit that the bank’s current damages are at least $40 million.

Kristin Friel, a Barclays spokeswoman, declined to comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment on the lawsuits, saying the company hadn’t seen the complaints.

“Defendants routinely ignored the pervasive defects that their due diligence identified in the loans they had purchased for securitization,” LBBW said. “Defendants deliberately concealed these defects from plaintiffs and other investors in order to increase their own profits.”

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Faulty mortgages and foreclosure abuses have cost the nation’s five biggest home lenders at least $65.7 billion, according to a tally by Bloomberg News, and new claims may push the industrywide total to twice that amount.

The cases are Sealink Funding Ltd. vs. Countrywide Financial Corp., 652679/2011, New York State Supreme Court, New York County (Manhattan); Sealink Funding Ltd. vs. Bear Stearns & Co. Inc., 652681/2011, New York State Supreme Court, New York County, Manhattan.

--Editors: Mary Romano, Steve Farr

To contact the reporters on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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