Pimco sues Citibank over ‘defective’ mortgage securities

by MPA25 Nov 2015
By Erik Larson

(Bloomberg) -- Pacific Investment Management Co. sued Citigroup Inc. over the bank’s role as trustee for $13.8 billion of mortgage-backed securities made toxic when the housing bubble burst, leading to "substantial damages."

The lawsuit by more than two dozen Pimco trusts was filed Tuesday in New York state court in Manhattan. According to the complaint, subsidiary Citibank NA knew the pools of loans backing the trusts from 2004 to 2007 were filled with defective mortgages.

Prudential Retirement Insurance& Annuity Co. and Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., joined the Pimco trusts in the complaint. The claims include breach of contract and breach of fiduciary duty.

"Citibank knew that the pools of loans backing the trusts were filled with defective mortgage loans that materially breached seller representations and warranties," the trusts said in the complaint. The "abysmal performance" of the trust collateral included "spiraling defaults, delinquencies and foreclosures."

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment on the lawsuit.

The bank’s monthly reports showed that by January 2009, the trusts had losses of more than $183.4 million, according to the complaint. The plaintiffs didn’t say how much in damages they’re seeking.


  • by Sbharkness | 11/25/2015 5:20:26 PM

    Of course they knew and there is a simply way to fix this but I doubt it will ever happen. When the seller of the mortgage securities is the one paying the rating agency for the rating it causes a huge conflict of interest. The rating agency wants to get the business for the next pool of mortgages but they know they won't unless they give the seller the rating that they wanted...It's only common sense. Would you buy a house or a car or anything when the seller paying for the appraisal (rating)? NO, you wouldn't. So why don't we just change the law so the buyer of the securities pays the rating agency for the rating? Very simple fix.....which is why I know it will never be implemented. Our government and more importantly the powers that control the money supply try to keep things as complicated as possible so that things are beyond the regular citizens ability to understand. Quite frankly that doesn't take much with a citizenry that's more worried about Kim Kardashian's back side and who's been pinching it than pay attention to anything of real substance.

  • by | 11/25/2015 7:12:57 PM

    If you dont qualify your borrower properly, which is what the liberals wanted, you get a pile of people with money to buy. Which in turn drives the price of the product (housing) up. Of course there were bad mortgages in the pool, but everyone should own their own home - right ? Good bankers will not make a bad mortgage if they can help it, unless the government powers that be tell them to, and guarantee them. When you have Acorn and other groups protesting in your lobby to make the bad mortgages that Frank and Dodd wanted, what the blazes are you going to do. Oh I know - sue the bank that made the bad mortgages, the mortgages the government told them to make.

    The world is upside down.

  • by Investor | 11/26/2015 1:34:33 AM

    I agree with Sharkness that common sense says checks and balances should dictate that the investor pay for the ratings so the ratings agencies are accountable to them, not the issuer. Be that as it may, it begs the question why aren't the investment bank/issuers that are being sued turning around and suing the ratings agencies for giving faulty opinions? Could it be because the ratings agencies would then spill the beans about the quid pro quo that was going on between them?

    Also, while it's true that liberals were all for making mortgages to less than qualified borrowers, the primary reason the banks were making no down, no doc, 110% mortgages was because they were making a ton of money selling the to Wall Street and securitizing them because there was no accountability. The banks saying they were primarily making those mortgages because of pressure by liberals was more a fig leaf for doing something they wanted to do anyway, at least as long as they could off load those mortgages to Wall Street. In fact the pressure from Wall Street for more mortgages to securitize was the primary driver that lead to making mortgages of lower and lower quality.


Is TILA-RESPA a good or bad thing long term?