U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.
If there ends up being no deal, the government could sue the bank.

A settlement of more than $13 billion would be even larger than the $13 billion global settlement reached with JPMorgan Chase (JPM) over similar claims (including a $4 billion agreement with the Federal Housing Finance Agency). Included in that deal was resolution over loans the firm took over when it bought Bear Stearns Cos. and Washington Mutual Inc.

Already, claims against Bank of America over mortgages related to the financial crisis have cost it at least $50 million to resolve. Just last month, the bank agreed to settle claims made by the FHFA for $9.5 billion. That case was related to mortgage-backed securities that it sold to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the economic crisis.

In its latest first quarter, Bank of America disclosed to investors that not not only did it sustain a $276 million loss but also it paid $6 billion in legal costs related to the financial crisis. Other big mortgage cases against the bank are still pending.

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U.S. Said to Ask BofA for More Than $13 Billion Over RMBS, Bloomberg, April 24, 2014

Bank of America, Weighed by Legal Costs, Posts Loss, NY Times, April 16, 2014

Fannie, Freddie, FHFA settle MBS lawsuit with BofA, Housing Wire, March 26, 2014

More Blog Posts:
Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2013

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval, Institutional Investor Securities Blog, January 31, 2014