Bloomberg News

Bank of America Sued Over $261 Million in Mortgage Bonds

November 14, 2012

Bank of America Corp. (BAC:US), the second- biggest U.S. lender by assets, was sued by investors over $261.2 million worth of residential mortgage-backed securities.

The case was filed yesterday in New York state Supreme Court in Manhattan by investors including Phoenix Light SF Ltd. They asked for damages of more than $122.2 million from defendants including the Charlotte, North Carolina-based lender and its Countrywide unit.

The investors said they relied on offering materials that misrepresented and omitted statistical characteristics of the loans underlying the securities, including the percentage of properties that were occupied by owners.

Lawrence Grayson, a spokesman for Bank of America, didn’t immediately respond to an e-mail seeking comment on the lawsuit.

In September, investors including Phoenix Light sued Bank of America in the same court over losses of more than $36.6 million on mortgage-backed securities worth about $69.8 million. They also sued lenders including JPMorgan Chase & Co. (JPM:US) and Goldman Sachs Group Inc. (GS:US) for $1.8 billion in May, and Deutsche Bank AG’s Ace Securities for about $300 million in February.

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.

‘Rescue Financing’

Phoenix is a limited liability company based in Dublin that inherited legal claims from “entities that collapsed or nearly collapsed” in exchange for “rescue financing” and “other good and valuable consideration,” according to the complaint against Deutsche Bank filed in February.

The entities include Dusseldorf, Germany-based WestLB, the 180-year-old German state-owned lender that ceased operations on June 29 as part of European Union conditions tied to a 17 billion-euro bailout following the 2008 financial crisis, according to the complaint.

The other entities include George Town, Cayman Islands- based Harrier Finance Ltd., Dublin-based Kestrel Funding Plc and Delaware-based Grayhawk Funding LLC, all of whom hired WestLB’s New York-based Brightwater Capital Management unit to manage investments in mortgage-backed securities, according to the complaint.

The other plaintiffs in the suits are mortgage-backed securities investors based in Ireland or the Cayman Islands, according to court filings.

The case is Phoenix Light SF Ltd. v. Bank of America Corp. (BAC:US), 653916/2012, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

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


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $17.05 USD
    • 0.04
    • 0.23%
  • JPM
    (JPMorgan Chase & Co)
    • $60.24 USD
    • -0.09
    • -0.15%
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