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Wells Fargo withholds $90 million for legal costs, shakes up mortgage bond market



Wells Fargo held $90 million back from residential mortgage-backed securities investors this week, saying that it needed the money to cover legal expenses. The unexpected move could have an impact on the mortgage bond market.

Bloomberg has the details on how it all breaks down:

The bank said it invoked its right as trustee to hold back funds to cover legal costs. The 20 transactions had a principal balance of $540 million and are among more than 2,000 deals involved in a lawsuit brought by bondholders including BlackRock Inc. and Pacific Investment Management Co. in 2014 to recover losses from the financial crisis.

It’s only the second time that proceeds from bonds involved in that litigation have been withheld from investors. Wells Fargo’s move caused losses for some bondholders and sent others scrambling to assess risks for similar deals in a market still recovering from the bursting of the housing bubble in 2008.

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