(June 29, 2011) – In the banking industry’s largest single settlement stemming from the 2008 housing market collapse, Bank of America has agreed to pay $14 billion to investors who bought unsound mortgage-backed securities from its Countrywide Financial subsidiary.
“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us,” Brian T. Moynihan, the bank’s chief executive, said in a statement. “We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.”
The mortgage investors alleged in a letter to the bank last fall that Countrywide sold them securities that did not meet sellers’ promises about the quality of the borrowers or the collateral, the Wall Street Journal has reported. They also accused Countrywide of failing to maintain accurate files while managing the loans.
In the aftermath of the 2008 housing market collapse, many banks were hit with lawsuits over alleged improprieties relating to the sale of mortgage-backed securities. Public pension plans in particular went after the banks and Bank of America’s Countrywide subsidiary was a frequent target of their lawsuits. In January, for example, the State of Michigan sued Countrywide Financial in a bid to recover $65 million for its public pension funds. Michigan State Attorney General Bill Schuette accused Countrywide of misleading investors about the integrity of its mortgage loan underwriting standards.
The settlement will only increase the pressure on Bank of America’s peers to agree to settle with their embittered customers, the Wall Street Journal has said. Banks like JPMorgan Chase, Citigroup, and Wells Fargo all face potential losses related to the sale of mortgage-backed securities in the billions of dollars. Bank of America has already paid out about $17 billion in addition to the newly announced $14 billion settlement.
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