FDIC Goes After 12 Banks for Misrepresenting RMBS

The ""Federal Deposit Insurance Company (FDIC)"":http://www.fdic.gov/ launched a suit against 12 banks Friday regarding misrepresentations of residential mortgage-backed securities sold to now-defunct, Alabama-based Colonial Bank.

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Among those accused are some of the nation's largest banks, including ""JPMorgan Chase"":http://www.jpmorganchase.com/corporate/Home/home.htm, ""Citi"":http://www.citigroup.com/citi/, ""Bank of America"":https://www.bankofamerica.com/ and ""Wells Fargo"":https://www.wellsfargo.com/.

The 12 banks sold more than $388 million in securities to colonial bank, and the FDIC alleges the banks misrepresented several aspects of the loans making up the securities.

""When they issued or underwrote these certificates, the defendants made numerous statements of material fact about the

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certificates and, in particular, about the credit quality of the mortgage loans that backed them,"" states the FDIC's court filing, obtained by ""Bloomberg."":http://www.bloomberg.com/news/2012-08-10/jpmorgan-citi-units-sued-by-fdic-over-colonial-sales.html ""Many of those statements were untrue.""

At issue are alleged misrepresentations of loan-to-value ratio, inflated appraisals, inaccurate statements of occupancy or primary residency, ""and the extent to which the entities that made the loans disregarded their own standards in doing so,"" according to the court filing.

According to the FDIC, of the 11 securities sold to Colonial, the percentage of individual loans reflecting misrepresentations range from 51 to 73 percent.

The Alabama State Banking Department closed Colonial Bank in ""August 2009,"":http://www.fdic.gov/news/news/press/2009/pr09143.html appointing the FDIC as receiver of the failed bank. The bank had 346 branches in Alabama, Florida, Georgia, Nevada, and Texas.

At the time, the FDIC estimated its loss due to the failure would total $2.8 billion.

A Wells Fargo spokesperson told the ""Wall Street Journal"":http://online.wsj.com/article/SB10000872396390443404004577581702785709304.html, ""We believe the allegations are entirely without merit, and we intend to defend ourselves in court.""

When contacted by MReport Monday, Bank of America and Citi declined to comment on the matter.

First Horizon; Ally; Credit Suisse; Deutche Bank; FTN Financial; HSBC; Merrill Lynch, Pierce, Fenner & Smith Inc.; RBS; and UBS are also defendents in the case.