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Watertown Savings Bank President: Bank of America 'Misrepresented' Loans

wickedlocal.comMay 1, 2012

By Erin Baldassari

Watertown Savings Bank took on some big players Friday, filing a lawsuit in New York State Supreme Court against Bank of America, JP Morgan and Goldman Sachs, among others, over a $130 million investment.

Watertown Savings Bank President Brett Dean said the mutual bank was hoping to reclaim damages from investments in the kind of mortgage-backed securities that many economists have attributed to the housing bubble and financial collapse of 2008.

Dean said the bank is filing the suit because it feels Bank of America and other institutions misrepresented those securities.

“The impression of the representation was that the securities were the most prime loans – they for owner-occupied mortgages with high (credit) scores – not investment properties,” Dean said. “Many people don’t feel like these loans performed like they were the true types of loans – that the actual performance wouldn’t have been possible if they were these high quality loans.”

Dean said Watertown Savings began investing in the “AMF Ultra Short” and “AMF Ultra Short Mortgage” funds in 2001. The big banks pooled the mortgages together and sold them, a process called securitization.

“When you do that, you have to make certain representations about what types of mortgages you put in the pool,” Dean said. “As a mutual community bank, we invest in what we can perceive to be the safest possible investment we can make. We don’t look to maximize returns, we look at maximizing safety.”

Lawrence Grayson, a representative from Bank of America, declined to comment on the suit.

Watertown Savings is just one of many institutions that invested in the same securities, Dean said. Attorney General Eric Holder announced in January that the Justice Department subpoenaed 11 financial institutions in related investigations over the very same mortgage-backed securities, and hundreds of hospitals, towns, schools, pension funds, community banks, and others have since done the same.

“The allegations are out there and have been out there for some time,” Dean said. “This concept of fraud within mortgage-backed securities is an old issue for us.”

If Watertown Savings didn’t add its case to the New York State Supreme Court docket, it would have passed the statute of limitations to do so, Dean said.

“We’re putting them on notice so that we may pursue action sometime in the future. If we didn’t do that that, we wouldn’t have had any rights to do so later on,” Dean said. “We really don’t expect to be doing anything anytime soon. This is just preserving our ability to do something in the future.”

Dean said they are waiting to hear more about what happens with the Justice Department investigation and with the other lawsuits before moving forward with the suit.

“What we’ve seen so far has moved very slowly,” Dean said. “This isn’t something we’re thinking about everyday. It’s something for a longer-term view.”

In addition to Bank of America, Watertown Savings named Merrill Lynch, Goldman Sachs, JP Morgan, Bear Sterns, Barclays, Washington Mutual Bank, Credit Suisse, and Countrywide in the suit.

Back to May 2012 Archive

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