SAN FRANCISCO – In a move that could presage a similar effort by corporate credit unions, the FHLB San Francisco filed suits this week against nine Wall Street firms alleging they misled it about the credit quality and risks of loans behind $19.1 billion in private-label residential mortgage-backed securities.
The suits, filed in state court here, names units of Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. FHLB San Francisco is seeking to rescind its purchases of the securities, which were rated AAA “based on the information provided by the securities dealers.”
The suits allege that the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities.
The bank claims the dealers failed to disclose that appraisals were biased upward on properties that secured mortgage loans, that underwriting guidelines were ignored by originators and that loan to property value ratios were exaggerated.
The complaint is similar to other suits brought by the FHLB Seattle and the FHLB Pittsburgh, which similarly were left holding huge inventories of toxic MBS.
Corporate credit unions also are said to be exploring suits against Wall Street providers of MBS that have gone bad and resulted in billions of dollars of losses.
