By Jonathan Stempel and Joe Rauch
NEW YORK/CHARLOTTE, N.C., Nov 5 (Reuters) - Bank of America Corp said a judge had dismissed a lawsuit by investors who claimed the bank failed to disclose necessary information about $352 billion of mortgage securities.
Citigroup Inc and Wells Fargo & Co both said on Friday that they also face similar lawsuits, but Bank of America's experience shows just how hard it will be for investors to win these cases, experts said.
'Courts require a certain level of precision in pleadings,' said Kathleen Engel, co-author of the forthcoming book 'The Subprime Virus' and associate dean at Suffolk University Law School in Boston. 'Investors would have to demonstrate material deficiencies in the disclosures that they relied on, to their detriment. It's a very fact-specific inquiry.'
Investors are generally suing to be repaid after buying mortgage bonds that soured.
Generally, investors have said that banks packaged mortgages into bonds that should never have been sold to investors in the first place. Bondholders generally want to sell bad loans back to the banks at face value, which in the worst case scenario could cost banks tens of billions of dollars.
On Thursday, U.S. District Judge Mariana Pfaelzer in Los Angeles narrowed the potential scope of claims by investors led by the Iowa Public Employees' Retirement System, drastically reducing the amount of mortgages BofA could be forced to rebuy.
The January complaint sought to unwind the investors' purchases of mortgages. It accused Countrywide Financial and many underwriters of misrepresenting the risks of owning securities issued between January 2005 and November 2007. Countrywide was the largest U.S. mortgage lender at the time.
Bank of America, which bought Countrywide in July 2008, said the ruling reduces the number of offerings at dispute from an original 427 totaling $352 billion, to 22 offerings of $31 billion.
Michael Goldberg, a lawyer for the Iowa fund, did not immediately return a call on Friday seeking comment.
BILLION DOLLAR FIGHT
BofA said on Friday that the bank was litigating mortgage-backed securities cases with more than $375 billion in securities involved.
With the California case's dismissal, that reduces the amount of mortgage-backed securities in litigation to $54 billion.
Wells Fargo said in a filing on Friday that it along with other lenders is a defendant in lawsuits brought by Federal Home Loan Banks.
At Citigroup, another large mortgage servicer, several large mortgage investors have sued over its underwriting processes.
Charles Schwab in July sued Citigroup and several other banks over losses on its $1.38 billion investment in 36 mortgage-related securitizations.
Cambridge Place Investment Management filed its own lawsuit in July seeking to recoup $1.2 billion it lost on subprime mortgages from Citi.
HIGH HURDLE
But for investors, a repurchase ordered by the courts is not a given.
In BofA's California case, Pfaelzer said that the investors lacked standing to challenge offerings they did not actually buy, and waited too long to sue on some of their claims.
'Each MBS is backed by a pool of unique loans, and the representations made in the prospectus supplements accompanying the issuance of those securities are themselves unique,' Pfaelzer wrote. 'Plaintiffs argue that they have standing to sue over any offering issued pursuant to a common registration statement. Plaintiffs are mistaken.'
The judge granted 30 days to file an amended complaint.
Analysts have said private investors may struggle to force banks to buy back mortgage securities, even after revelations that major lenders and servicers may have lost, botched or fraudulently submitted documents in a rush to foreclose.
They said Fannie Mae and Freddie Mac, the giant housing finance companies, have more leverage because of their size, and the dependence on the mortgage market on their involvement.
The case, which has another pension fund as the named plaintiff, is Maine State Retirement System et al v. Countrywide Financial Corp et al, U.S. District Court, Central District of California, No. 10-00302.
(Reporting by Jonathan Stempel and Joe Rauch; Additional reporting by Jon Stempel, Dan Wilchins and Maria Aspan in New York; Editing by Bernard Orr) Keywords: USA FORECLOSURES/LAWSUITS (joe.rauch@thomsonreuters.com; +1 704 692 5885; Reuters Messaging: joe.rauch.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK/CHARLOTTE, N.C., Nov 5 (Reuters) - Bank of America Corp said a judge had dismissed a lawsuit by investors who claimed the bank failed to disclose necessary information about $352 billion of mortgage securities.
Citigroup Inc and Wells Fargo & Co both said on Friday that they also face similar lawsuits, but Bank of America's experience shows just how hard it will be for investors to win these cases, experts said.
'Courts require a certain level of precision in pleadings,' said Kathleen Engel, co-author of the forthcoming book 'The Subprime Virus' and associate dean at Suffolk University Law School in Boston. 'Investors would have to demonstrate material deficiencies in the disclosures that they relied on, to their detriment. It's a very fact-specific inquiry.'
Investors are generally suing to be repaid after buying mortgage bonds that soured.
Generally, investors have said that banks packaged mortgages into bonds that should never have been sold to investors in the first place. Bondholders generally want to sell bad loans back to the banks at face value, which in the worst case scenario could cost banks tens of billions of dollars.
On Thursday, U.S. District Judge Mariana Pfaelzer in Los Angeles narrowed the potential scope of claims by investors led by the Iowa Public Employees' Retirement System, drastically reducing the amount of mortgages BofA could be forced to rebuy.
The January complaint sought to unwind the investors' purchases of mortgages. It accused Countrywide Financial and many underwriters of misrepresenting the risks of owning securities issued between January 2005 and November 2007. Countrywide was the largest U.S. mortgage lender at the time.
Bank of America, which bought Countrywide in July 2008, said the ruling reduces the number of offerings at dispute from an original 427 totaling $352 billion, to 22 offerings of $31 billion.
Michael Goldberg, a lawyer for the Iowa fund, did not immediately return a call on Friday seeking comment.
BILLION DOLLAR FIGHT
BofA said on Friday that the bank was litigating mortgage-backed securities cases with more than $375 billion in securities involved.
With the California case's dismissal, that reduces the amount of mortgage-backed securities in litigation to $54 billion.
Wells Fargo said in a filing on Friday that it along with other lenders is a defendant in lawsuits brought by Federal Home Loan Banks.
At Citigroup, another large mortgage servicer, several large mortgage investors have sued over its underwriting processes.
Charles Schwab in July sued Citigroup and several other banks over losses on its $1.38 billion investment in 36 mortgage-related securitizations.
Cambridge Place Investment Management filed its own lawsuit in July seeking to recoup $1.2 billion it lost on subprime mortgages from Citi.
HIGH HURDLE
But for investors, a repurchase ordered by the courts is not a given.
In BofA's California case, Pfaelzer said that the investors lacked standing to challenge offerings they did not actually buy, and waited too long to sue on some of their claims.
'Each MBS is backed by a pool of unique loans, and the representations made in the prospectus supplements accompanying the issuance of those securities are themselves unique,' Pfaelzer wrote. 'Plaintiffs argue that they have standing to sue over any offering issued pursuant to a common registration statement. Plaintiffs are mistaken.'
The judge granted 30 days to file an amended complaint.
Analysts have said private investors may struggle to force banks to buy back mortgage securities, even after revelations that major lenders and servicers may have lost, botched or fraudulently submitted documents in a rush to foreclose.
They said Fannie Mae and Freddie Mac, the giant housing finance companies, have more leverage because of their size, and the dependence on the mortgage market on their involvement.
The case, which has another pension fund as the named plaintiff, is Maine State Retirement System et al v. Countrywide Financial Corp et al, U.S. District Court, Central District of California, No. 10-00302.
(Reporting by Jonathan Stempel and Joe Rauch; Additional reporting by Jon Stempel, Dan Wilchins and Maria Aspan in New York; Editing by Bernard Orr) Keywords: USA FORECLOSURES/LAWSUITS (joe.rauch@thomsonreuters.com; +1 704 692 5885; Reuters Messaging: joe.rauch.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.