In the latest blow from its takeover of Countrywide Financial Corp., Bank of America Corp. tentatively agreed to pay $8.5 billion to settle claims by large investors stung by losses on mortgage-related securities that Countrywide issued.
The final details of the agreement were still being worked out, according to a bank executive knowledgeable about the pending settlement but not authorized to discuss it publicly.
The 22 investors, including money-management giants Pacific Investment Management Co. of Newport Beach and BlackRock Inc. of New York, held $56 billion in bonds backed by loans from Countrywide, once the nation's largest home lender and an aggressive supplier of subprime and other high-risk mortgages.
“This transaction essentially takes all Countrywide's private-label mortgage-backed securities off the table,” the executive said Tuesday. “It's considered to be a significant step forward in Bank of America putting the Countrywide issues behind us.”
The pending settlement covers only mortgage-related securities issued by Countrywide and not those that BofA issued on its own.
BofA shares, which had lost 3 cents on the day, were up 12 cents at $10.94 in after-hours trading after word of the impending deal leaked. Some estimates of the bank's liability had been much higher than $8.5 billion.
“The Street will view this as a good number,” said Paul Miller, an analyst with FBR Capital Markets.
Nearly all major mortgage issuers of that era bundled up most of their loans and sold them to private investors as well as to government-sponsored entities such as Fannie Mae and Freddie Mac.
Help fight ignorance. Click here for free Truthout email updates.
Fannie, Freddie and a host of institutional investors have demanded that the banks buy back many of the mortgage bonds, contending that the lenders understated the riskiness of the loans and mishandled troubled borrowers after the industry's meltdown beginning in 2007.
Bank of America agreed in January to pay Fannie and Freddie $2.8 billion to settle demands for buybacks of flawed home loans, in addition to some $3.5 billion in such payments it had already made to them.
The pending settlement would be the first with private mortgage bond investors, but it's unlikely to be the last. Among other big lenders with major exposure are Wells Fargo & Co. and JPMorgan Chase & Co. Chase had bought the remains of one of the most aggressive lenders, Washington Mutual Bank, after the Seattle-based thrift became the largest bank failure in history.
BofA, based in Charlotte, N.C., has struggled to put Countrywide's woes behind it since 2008 when it paid $2.5 billion in stock for the Calabasas-based mortgage specialist.
The bank settled securities-fraud accusations by some major Countrywide shareholders in August, but before the deal was finalized 33 plaintiffs — including the California Public Employees' Retirement System — dropped out to seek more money on their own.
And in April, BofA agreed to pay $1.1 billion to mortgage insurer Assured Guaranty Ltd. Other mortgage insurers are pressing claims to try to recover losses they sustained on Countrywide loans.
BofA is also among five major loan servicers negotiating with a coalition of state attorneys general and federal officials seeking damages and reforms following revelations that the lenders shortcut procedures and failed to follow laws while foreclosing on borrowers.
The damages under discussion in that case range from a total of $5 billion to more than $20 billion, according to people close to the negotiations.
© 2011 McClatchy-Tribune Information Services
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
Last week, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy