On Monday, the Federal Home Loan Bank (FHLB) of San Francisco filed complaints in the Superior Court of California, County of San Francisco, against nine securities dealers in relation to some of the bank's investments in private-label residential mortgage-backed securities (RMBS).
The FHLB is seeking to rescind its purchases of 134 securities in 113 securitization trusts, alleging the dealers misled the bank regarding the characteristics of the loans underlying the securities. The bank paid more than $19.1 billion for the securities.
All of the RMBS in the bank's mortgage portfolio, including those identified in its complaints filed, were rated AAA when purchased, based on the information provided by the securities dealers.
"The bank employs conservative criteria and guidelines for all its MBS investments," the bank said in a statement, adding that it invests in high-quality financial instruments "to facilitate its role as a cost-effective provider of credit and liquidity to its member financial institutions."