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Latest Suit Adds to MBS Woes for JPMorgan Chase

In another twist for the nation's largest mortgage lenders, ""Wells Fargo"":https://www.wellsfargo.com/ upped the ante against ""JPMorgan Chase & Co."":http://www.jpmorganchase.com/corporate/Home/home.htm by filing a suit in a Delaware court to order the latter to buy back over $558 million in bad mortgage-backed securities. Multiple news outlets offered up the latest tizzy Thursday, with Wells escalating the case after JPMorgan refused to budge on the repurchases.

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Wells Fargo made repurchase demands over defective loans for which it serves as a trustee, according to ""_Bloomberg News_"":http://www.businessweek.com/news/2011-09-15/jpmorgan-unit-must-buy-back-558-million-in-loans-suit-says.html. The loans stem from the Bear Stearns Mortgage Funding Trust 2007-AR2, otherwise known as the EMC unit, which JPMorgan acquired at the height of the financial crisis in 2008.

The news service quoted Wells Fargo as alleging in a complaint, ""The loans have been plagued by an alarming rate of defaults and foreclosures. Approximately three-quarters of the loans in the trust have been modified or liquidated, or are now seriously delinquent.""

According to ""_Reuters_"":http://www.reuters.com/article/2011/09/15/jpmorgan-wellsfargo-mortgages-idUSS1E78E1HF20110915, Wells Fargo lodged in the complaint that a forensic review revealed breaches in 89 percent of the representations and warranties from a single sample of close to a thousand home loans.

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Some 1,500 loans exclusive to the EMC unit are eligible for buy-back, the news service said.

Nearly half of these loans have undergone liquidation, _Reuters_ quoted from a letter included in the complaint as an addition to the exhibit, with the latter laying claim to $214.4 million in losses for the principal, which includes interest accrued in the process.

_Bloomberg_ reported that JPMorgan is accountable for 51 percent of the other mortgage loans, still borne by the trust, which bottom-line at $344.5 million in total.

The suit leveled against JPMorgan by Wells is the latest in a string of suits by banks against banks. In August ""US Bancorp"":http://www.usbank.com/index1.html ""filed a suit"":https://themreport.com/articles/us-bancorp-sues-bofa-over-175b-mortgage-pool-2011-08-30 against ""Bank of America"":http://promo.bankofamerica.com/multiproduct/index2.html?cm_mmc=EBZ-EnterpriseBrand-_-Google-PS-_-bank%20of%20america-_-Bank%20Of%20America%20Exact to brake the $8.5-billion mega settlement proposed by the latter to cover a swath of litigation over bad mortgage-backed securities.

The clash of the mortgage giants is only one small part of the larger national drama over repurchases and mortgage-backed securities.

Earlier this month, the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ ""launched suits"":https://themreport.com/articles/fhfa-may-sue-mortgage-giants-over-mbs-losses-2011-09-02 against 17 of the nation's largest mortgage lenders, including JPMorgan Chase, in an effort to recoup billions in losses sustained by ""Fannie Mae"":http://www.fhfa.gov/ and ""Freddie Mac"":http://www.freddiemac.com/, for which the agency serves as federal conservator.

Speaking to _MReport_ for a past story, ""Alex Pollock"":http://www.aei.org/scholar/88, resident fellow with the ""American Enterprise Institute"":http://www.aei.org/home and former president of the ""Federal Home Loan Bank of Chicago"":http://www.fhlbc.com/index.shtml, described the endless litigation as part of a ""national strategy├â┬ó├óÔÇÜ┬¼├é┬ª and debate"" about which market players are most responsible for the 2008 financial crisis.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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