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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.


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.


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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