Law Suits & Courts

FHLB Boston Sues to Rescind Purchases of $5.8B in Mortgage Bonds

Posted on Thursday, May 5, 2011

The Federal Home Loan Bank of Boston has filed a complaint with the Massachusetts Superior Court to rescind investments it made in private-label mortgage-backed securities (MBS) issued by 115 securitization trusts totaling $5.8 billion.
The suit alleges that the securities dealers, underwriters, issuers, and credit ratings agencies involved in the transactions made “untrue or misleading statements” regarding the quality of the underlying loans and the creditworthiness of the borrowers.
According to the complaint, a host of parties involved in the sale of the securities, as well as the signing or circu-
lating of securities documents were aware of material misrepresentations and omissions, negligence, unfair and deceptive trade practices, and fraud by the ratings agencies.
The federal bank is seeking rescission, recovery of damages, recovery of purchase consideration plus interest, and payment of attorneys’ fees and other costs associated with the suit.
According to the Boston Business Journal, heavy losses and write-downs on its MBS portfolio forced the Federal Home Loan Bank to suspend its dividend payments to member banks.
The bank said in its first-quarter earnings announcement last week that it will reinstate the dividend, to be paid on May 3.
The institution’s board of directors said it anticipates it will continue to declare modest cash dividends through 2011, but officials cautioned that “adverse events such as a negative trend in credit losses on the bank’s private-label mortgage-backed securities … could lead to reconsideration of this plan.”
The local Business Journal says the federal bank has brought in a new management team “amid a crisis of confidence in the institution’s direction.”
By: Carrie Bay DS NEWS

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