Wells Fargo must face litigation on defective mortgages: U.S. Judge

A federal judge on Thursday said Wells Fargo & Co must face litigation seeking to hold it responsible for billions of dollars of claimed investor losses stemming from its alleged failures as a trustee overseeing risky residential mortgage-backed securities. U.S. District Judge Katherine Polk Failla in Manhattan said the plaintiffs, including a few dozen funds from BlackRock Inc, Pacific Investment Management Co, Prudential Financial Inc and TIAA-CREF, may pursue breach of contract and conflict of interest claims related to 53 trusts. Failla also said the investors may pursue some claims alleging breaches of fiduciary duty and due care, but she dismissed claims alleging general negligence and the violation of a New York law governing mortgage trusts. Failla also denied Wells Fargo’s bid to dismiss claims by Germany’s Commerzbank AG. Failla’s 80-page decision covers five lawsuits, which comprise one of the largest remaining pieces of U.S. litigation seeking to hold banks liable for risky mortgage securities that were a major cause of the 2008 global financial crisis. Much of this litigation targeted lenders, but some targeted trustees that oversaw the securities’ performance. Investors accused Wells Fargo of having taken “virtually no action” to require lenders to buy back or fix defaulted or poorly underwritten loans that backed their securities, despite knowing of shortfalls.