Wells Fargo & Co. was sued by the agency that oversees federal credit unions and accused of failing to protect investors while acting as trustee over securities backed by home loans that defaulted after the 2008 credit crisis.
Investors in the mortgage securities that played a central part in the housing bubble that helped send the U.S. into the worst recession since the 1930s are increasingly taking aim at trustees over their roles in the crisis.
The National Credit Union Administration board's complaint, filed in federal court in Manhattan, follows a similar action taken by the regulator last week against Bank of America Corp. and U.S. Bancorp. The cases are based on the same allegations as those filed in June against trustees by mortgage-bond investors including BlackRock Inc. and Pacific Investment Management Co.
Wells Fargo, as trustee for 27 trusts that issued residential mortgage-backed securities, failed to review loan files for irregularities and ignored signs of trouble with the trusts, which suffered "enormous losses due to the high number of mortgage defaults, delinquencies and foreclosures caused by defective loan origination and underwriting," according to the complaint.
"Even after ample evidence came to light that the trusts were riddled with defective loans, defendant shut its eyes to such problems and failed to take the steps necessary to protect the trusts and certificate holders," the board said in the suit.
The National Credit Union Administration sued on behalf of five credit unions it is liquidating that bought certificates in the 27 trusts with an original face value of about $2.4 billion.
"We strongly disagree that Wells Fargo is in any way responsible for any losses incurred on these transactions," said Trisha Schultz, a spokeswoman for the San Francisco-based bank.