On Thursday, Massachusetts Mutual Life Insurance Co. filed a lawsuit against J.P. Morgan Securities LLC and four other financial firms claiming that $200 million in residential mortgage-backed securities it purchased through the firms were now "junk."
Then on Friday, U.S. Bancorp filed a $95 million suit in which it is demanding that J.P. Morgan Securities buy back mortgage-backed securities underwritten in 2005 by Bear Stearns Cos. that later soured. JPMorgan Chase bought Bear Stearns in 2008. The lawsuit, first reported by Reuters, was filed in the New York State Supreme Court.
Financial services companies have faced an onslaught of litigation from investors over losses from mortgage-backed securities. Many of the suits involve claims that the loans did not meet banks' underwriting standards but were sold anyway and investors were not told of the risks.
In its complaint filed in U.S. District Court in Massachusetts, Mass. Mutual said it was misled about the risks of the securities it purchased from March 2005 to June 2007. The securities were underwritten by Merrill Lynch, Pierce, Fenner & Smith Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co., Inc., J.P. Morgan Securities LLC and RBS Securities Inc. and backed by home loans issued by Residential Funding Co. LLC.
Mass. Mutual said that the loans were "issued on the basis of overstated incomes, inflated appraisals, false verifications of employment and exceptions to underwriting criteria that had no proper justification." Mass. Mutual said the securities "now qualify as junk" as "over 40 percent of the loans backing the securities have now defaulted, have been foreclosed upon, or are delinquent."
The news of the lawsuit was first reported by the Boston Business Journal.
This is the second suit Mass. Mutual has filed relating to the mortgage meltdown. In May, it filed a suit claiming that four banks did not disclose the risks associated with $175.8 million of mortgage-related debt it bought. That investment lost 77 percent of its value.
This article was reprinted with the permission of American Banker.
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