(Bloomberg) -- BlackRockInc., the worlds biggest money manager, and Pacific Investment Management Co. are among investors that sued banks including Citigroup Inc. and Deutsche Bank AG over their roles as mortgage-bond trustees.
The banks knew the loans underlying trillions of dollars worth of residential mortgage-backed securities were misrepresented and failed to invoke their rights to force the sellers to buy them back or act against servicers, causing billions of dollars in losses, according to copies of the complaints reviewed by Bloomberg News. The filings couldnt be immediately confirmed yesterday in New York State Supreme Court in Manhattan.
Bank of New York Mellon Corp. negligently failed to protect the trusts and certificate holders, according to a copy of the complaint against the New York-based company. BNYM and its responsible officers knew of pervasive, material breaches of originators and RMBS sponsors representations and warranties, and loan servicers material breaches, yet did nothing to protect the trusts.
Pools of home loans securitized into bonds were central to the housing bubble that helped send the U.S. into the worst recession since the 1930s. The housing market collapsed, and the market for the securities evaporated.
Ron Gruendl, a spokesman for BNY Mellon, and Renee Calabro, a spokeswoman for Deutsche Bank, declined to comment on the suits. Juanita Gutierrez, a spokeswoman in New York for HSBC Holdings Plc, another defendant, also declined to comment on the claims.
A call to Citigroup public affairs after regular business hours yesterday went unanswered. Teri Charest, a spokeswoman for U.S. Bancorp, and Oscar Suris, a spokesman for Wells Fargo & Co., didnt immediately respond to voice-mail messages seeking comment on the lawsuits against those companies.
The Association of Institutional Investors, whose members include Pimco, asked Congress in April to create an unambiguous fiduciary standard for trustees of mortgage bonds without government backing as a Senate committee considered a bill that would overhaul the $9.4 trillion home- loan market by replacing U.S.-controlled Fannie Mae and Freddie Mac.
The money managers are pushing for Congress to step in as they did with the corporate-bond market in 1939, when the Trust Indenture Act created new duties and responsibilities for debt administrators in order to protect investors and give them the confidence to extend credit following evidence of misdeeds after the stock market crash of 1929.
Mortgage-bond investors are seeking the shift after finding they needed to band together to prod trustees into action to receive compensation from banks for loans that were riskier than promised. They also seek to change allegedly poor management of the debt by servicers.