Bank of America Corp. (BAC) has paid American International Group Inc. (AIG) $650 million to settle residential mortgage-backed securities fraud claims. The insurer had originally asked for $10 billion when it filed its RMBS fraud lawsuit in 2011.
According to the complaint, Bank of America’s mortgage company Countrywide Financial, misrepresented the quality of mortgage securities it was selling to investors. The settlement resolves the securities fraud litigation brought by the insurer against the bank. This includes lawsuits in California and New York accusing Bank of America of fraudulently causing billions of dollars in losses.
It also takes away the largest obstacle to Bank of America’s $8.5 billion mortgage securities settlement with institutional investors over the financial instruments that Countrywide issued. The investors in that case are 22 institutions, including BlackRock Inc. (BLK.N), and MetLife Inc. (MET.N).
AIG had argued that the settlement with the institutional investors did not value its claims. Now, however, the insurer will accept a pro rata share of what the institutional investors get back.
Bank of America like other banks, continues to deal with the fallout from the 2007 financial crisis that led to the housing market’s collapse. It recently resolved a mortgage securities dispute with the Federal Housing Financing Agency that will cost it $9.33 billion. The bank is still in the middle of talks with the Department of Justice over high-risk subprime mortgages involving Countrywide and its Merrill Lynch unit.
The two sides have been able to agree on how much Bank of America should be penalized for mortgage securities that were sold by Countrywide. The bank wants prosecutors to factor in that it tried to get out of the Merrill purchase but felt pressured by regulators to go on with the deal during the financial crisis.
Media sources are reporting that with no resolution in sight, federal prosecutors are preparing to file a mortgage-backed securities case against Bank of America.
If you suspect your company or entity is the victim of institutional investor fraud, contact The SSEK Partners Group today.
Bank of America’s Settlement Negotiations Hit a Snag, NY Times, July 16, 2014
Bank of America Takes $4 Billion Litigation Hit, ABC News, July 16, 2014
BofA pays AIG $650 million to settle mortgage disputes, Reuters, July 16, 2014
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