Wells Fargo settles MBS investors claims for $125 million

Wells Fargo (WFC) agreed Thursday to take a $125 million haircut to end an investor lawsuit filed by retirement funds that lost money on mortgage-backed securities sold by the banking giant. The case mirrors suits filed against other huge financial institutions and claims Wells made “material misstatements regarding the appraisal values and loan-to-value ratios of the properties mortgaged by underlying loans.” The plaintiffs include Alameda County Employees’ Retirement Association, Government of Guam Retirement Fund, the New Orleans Employees’ Retirement System and Louisiana Sheriffs’ Pension and Relief Fund. In court records, the plaintiffs pushed for recovery alleging inflated appraisals led to artificially high ratings on the securities and “did not reflect the true risk of the investments” the funds acquired. The class-action lawsuit involves mortgage securities issued through Wells Fargo Asset Securities Corp. in late July 2005, October 2005 and September 2006. A proposed settlement was filed with the District Court Northern District of California – San Jose Division on Thursday. While Wells Fargo agreed to the settlement, the bank said the proposal is not an admission of wrongdoing. In late June, Bank of America (BAC) agreed to pay $8.5 billion to investors who lost money on soured residential mortgage-backed securities that were assumed by the banking giant after it acquired Countrywide Financial Corp. Bank of America settled with Bank of New York Mellon (BK), which served as trustee for 530 MBS trusts with a combined principal balance of $424 billion. BofA plans to record a second-quarter provision of $5.5 billion to cover any remaining representation and warranties issues. Write to Kerri Panchuk.