Articles Posted in Countrywide Finance

The U.S. Attorney for Manhattan’s Southern District is asking the Second Circuit Court of Appeals to look at a ruling that overturned the jury verdict that held Countrywide Home Loans liable for mortgage fraud. Countrywide, which is now owned by Bank of America (BAC), made billions of dollars on home loans that went into default following the 2008 financial crisis.

It was in 2007 that the mortgage provider introduced a new program, referred to as the “high-speed swim lane,” to process applications for mortgages. Within Countrywide, the program was dubbed the “hustle.”

The program did not include the majority of conditions required to make sure loans would be paid back after Wall Street banks, Freddie Mac, or Fannie Mae sold them to investors. Unfortunately, Freddie and Fannie were not told that these conditions had become more relaxed or that loans no longer met certain criteria. The two mortgage finance firms had tightened their own loan buying requirements and underwriting guidelines. As a result of the loosened restrictions by Countrywide, contended the Justice Department, “rampant instances of fraud” resulted.

Despite the 2013 jury verdict that found Countrywide and a Bank of America executive liable for mortgage fraud, a Second Circuit judge panel overruled the decision. It found that even though Countrywide purposely breached contracts, this was not fraud because the lender had not intended to fool customers at the time that contracts were signed.

Now, U.S. Attorney Preet Bharara wants a Second Circuit panel of judges to consider that Countrywide made false statements when selling loan bundles to customers, including Freddie Mac and Fannie Mae. He said that the court bypassed evidence at trial that showed how the defendants made fraudulent misrepresentations when selling the loans and while the contracts were being executed. Prosecutors are arguing that the language in the contract refers to each mortgage sale during the actual sale and not upon the writing of the contract.

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Deutsche Bank Reaches Swaps Violation Settlement with CFTC
The Commodity Futures Trading Commission and Deutsche Bank AG (DB) have reached a settlement over the regulator’s order accusing the firm of not properly reporting its swaps transactions from 1/13 through 7/15. The regulator also said there were supervisory failures and that the bank failed to modify the reporting errors at issue until after it found out that the CFTC was conducting a probe.

According to the regulator, Deutche Bank did not properly report swap transaction cancellations in all asset classes, resulting in somewhere between tens of thousands and hundreds of thousands of reporting errors, violations, and oppositions in its reporting of swaps. CFTC believes that the bank knew about the problem but did not notify its Swap Data Repository in a timely manner, nor did it properly probe, deal with, and modify the information deficiencies until last year when it became aware of the investigation. As a result of the reporting failures, the wrong information was put out to the public.

The CFTC believes that the bank’s reporting failures were partly because of deficiencies in its swaps supervisory system. A more adequate system could have better supervised Deutsche Bank’s activities involving compliance with reporting requirements.

Because the bank is a provisionally registered Swap Dealer, it has to abide by certain recordkeeping, disclosure, and reporting duties related to swap transactions. These requirements are supposed to improve transparency, encourage standardization, and lower systemic risk in swaps trading.

Investors File Class Action Securities Case Against Fifth Street Finance
An investor has filed a class action securities fraud case against Fifth Street Finance Corp. on behalf of shareholders. According to the plaintiff, and for those who bought Fifth Street Finance common shares between 7/7/14 and 2/6/15, the company, Fifth Street Asset Management, Inc., and specific directors and officers violated federal securities laws by allegedly taking part in a fraudulent scam to artificially inflate Fifth Street Finance assets and investment income to raise revenue of Fifth Street Management.

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The state of Virginia is suing 13 of the biggest banks in the U.S. for $1.15 billion. The state’s Attorney General Mark R. Herring claims that they misled the Virginia Retirement System about the quality of bonds in residential mortgages. The retirement fund bought the mortgage bonds between 2004 and 2010.

The defendants include Citigroup (C), JPMorgan Chase (JPM), Credit Suisse AG (CS), Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Deutsche Bank (DB), RBS Securities (RBS), HSBC Holdings Inc. (HSBC), Barclays Group (BARC), Countrywide Securities, Merrill Lynch, Pierce, Fenner & Smith Inc., and WAMU Capital (WAMUQ). According to Herring, nearly 40% of the 785,000 mortgages backing the 220 securities that the retirement fund bought were misrepresented as at lower risk of default than they actually were. When the Virginia Retirement System ended up having to sell the securities, it lost $383 million.

The mortgage bond fraud claims are based on allegations from Integra REC, which is a financial modeling firm and the identified whistleblower in this fraud case. Herring’s office wants each bank to pay $5,000 or greater per violation. As a whistleblower, Integra could get 15-25% of any recovery for its whistleblower claims.

A judge has approved an $8.5B mortgage-bond settlement between Bank of America (BAC) and investors. The agreement should settle most of the bank’s liability from when it acquired Countrywide Financial Corp. while the financial crisis was happening and resolves contentions that the loans behind the bonds were not up to par in quality as promised. Included among the 22 investors in the mortgage-bond deal: Pacific Investment Management Co., BlackRock Inc. (BLK), and MetLife Inc. (MET.N). Under the agreement, investors can still go ahead with their loan-modification claims.

The trustee for over 500 residential mortgage-securitization trusts is Bank of New York Mellon Corp. (BK), which had turned in a petition seeking approval for the deal nearly three years ago for investors who had about $174 million of mortgage-backed securities from Countrywide. Now, Judge Barbara Kapnick of the New York State Supreme Court Justice has approved the mortgage-bond deal.

Kapnick believes that the trustee had, for the most part, acted in good faith and reasonably when determining the settlement and whether it was in investors’ best interests. However, she is allowing plaintiffs to continue with their claims related to loan-modification because, she says, Bank of New York Mellon Corp “abused its discretion” on the matter in that even though the trustee purportedly knew about the issue, it didn’t evaluate the possible claims. Also, the judge said that it makes sense for this one-time payment because it was evident that Bank of New York Mellon was worried Countrywide wouldn’t be able to pay a judgment in the future that came close to the $8.5 billion settlement.

According to Massachusetts Attorney General Martha Coakley, Countrywide Securities Corp. (CFC) will pay $17 million to settle residential mortgage backed securities claims. The settlement includes $6 million to be paid to the Commonwealth and $11.3 million to investors with the Pension Reserves Investment Management Board. Countrywide is a Bank of America (BAC) unit.

Coakley’s office was the first in the US to start probing and pursuing Wall Street securitization firms for their involvement in the subprime mortgage crisis. Other RMBS settlements Massachusetts has reached include: $34M from JPMorgan Chase & Co. (JPM), $36M from Barclays Bank (ADR), $52 million from Royal Bank of Scotland (RBS), $102 million from Morgan Stanley (MS), and $60 million from Goldman Sachs. (GS).

Meantime, a federal judge is expected to rule soon on how much Bank of America will pay in a securities fraud verdict related to the faulty mortgages that Countrywide sold investors. A jury had found the bank and ex-Countrywide executive Rebecca Mairone liable for defrauding Freddie Mac and Fannie Mae via the sale of loans through that banking unit. The US government wants Bank of America to pay $863.6 million in damages. Mairone denies any wrongdoing.

The U.S. District Court for the Southern District of New York has decided that investors can sue Bank of New York Mellon (BK) over its role as trustee in Countrywide Financial Corp.’s mortgage-backed securities that they say cost billions of dollars in damages. While Judge William Pauley threw out some of the clams filed in the securities fraud lawsuit submitted by the pension funds, he said that the remaining ones could proceed. The complaint was filed by the Benefit Fund of the City of Chicago, the Retirement Board of the Policemen’s Annuity, and the City of Grand Rapids General Retirement System. The retirement board and Chicago’s benefit fund hold certificates that 25 New York trusts and one Delaware trust had issued, and BNY Mellon is the indentured trustee for both. Pooling and servicing agreements govern how money is allocated to certificate holders.

In Retirement Board of Policemen’s Annuity and Benefit Fund of City of Chicago v. Bank of New York Mellon, the plaintiffs are accusing BNYM of ignoring its responsibility as the investors’ trustee. They believe that the bank neglected to review the loan files for mortgages that were backing the securities to make sure that there were no defective or missing documents. The bank also allegedly did not act for investors to ensure that loans having “irregularities” were taken from the mortgage pools. As a result, bondholders sustained massive losses and were forced to experience a great deal of uncertainty about investors’ ownership interest in the mortgage loans. The plaintiffs are saying that it was BNYM’s job to perfect the assignment of mortgages to the trusts, certify that documentation was correct, review loan files, and make sure that the trust’s master servicer executed its duties and remedied or bought back defective loans. Countrywide Home Loans Inc. had originally been master servicer until it merged with Bank of America (BAC).

The district court, in granting its motion, limited the lawsuit to the trusts in which the pension fund had interests. It also held that the fund only claimed “injury in fact” in regards to the trusts in which it held certificates. The court found that the certificates from New York are debt securities and not equity and are covered under the Trust Indenture Act. The plaintiffs not only did an adequate job of pleading that Bank of America and Countrywide were in breach of the PSAs, but also they adequately pleaded that defaults of the PSAs were enough to trigger BNYM’s responsibilities under Sections 315(b) and (c). The court, however, threw out the claims that BNYM violated Section 315(a) by not performing certain duties under the PSAs and certain other agreements.

BNYM says it will defend itself against the claims that remain.

Bank of NY Mellon must face lawsuit on Countrywide, Reuters, April 3, 2012

Judge Rejects Bank Of NY Mellon Motion To Dismiss Countrywide Suit, Fox, April 3, 2012

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Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

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Bank of America Corp. has agreed to a record $335 million settlement to pay back Countrywide Financial Corp. borrowers who were billed more for loans because of their nationality and race, while creditworthiness and other objective criteria took a back seat. All borrowers that were discriminated against qualified to receive mortgage loans under Countrywide’s own underwriting standards.

The settlement is larger than any past fair-lending settlements (totaling $30M) that the US Justice Department has been able to obtain to date. Countrywide was acquired by Bank of America in 2008.

According to the Justice Department, Countrywide charged higher fees and interest rates to over 200,000 Hispanic and black borrowers while directing minorities to more costly subprime mortgages despite the fact that they qualified for prime loans. Meantime, the latter were given to non-Hispanic white borrowers who had similar credit profiles.

Not long after bowing out of talks over a possible $25 billion dollar settlement between state and federal officials and the country’s largest banks (including Bank of America Corp, Citigroup, and JP Morgan Chase & Co.) over alleged foreclosure abuses, California’s Attorney General’s office has subpoenaed BofA as part of its investigation into whether it and subsidiary Countrywide Financial employed false pretenses to get private and institutional investors to purchase risky mortgage-backed securities. By walking out of the negotiations on the grounds that the banks weren’t offering a big enough settlement, the state of California has given itself the option of arriving at a larger settlement.

California Attorney General Kamala D. Harris has called the proposed settlement “inadequate” for the homeowners in her state. She has also has set up a mortgage fraud strike force tasked with investigating all areas of mortgage fraud.

Countrywide is credited with playing a role in the housing boom and its later collapse because of subprime loans it gave clients with poor/no credit histories, mortgages that let borrowers pay such a small amount that their loan balances went up instead of down, and “liar” loans that were issued without assets and income being confirmed. Also, a lot of the most high-risk loans were bundled up to support private-label securities that became highly toxic for investors and banks.

Meantime, Federal and state officials are trying to get California to rejoin the larger talks. Just this week, they presented the possibility of helping troubled creditworthy owners refinance their loans. California’s involvement is key for any deal because the state so many borrowers that owe more than the value of their homes, are in foreclosure, or are running behind on mortgages.

New York, too, has backed out of the group—a move that proved to be another blow for negotiations, as well as for the Obama Administration. Officials from other states, such as Nevada, Delaware, Minnesota, Massachusetts, and Kentucky, have also expressed worry about the breadth of the settlement and whether all potential misconduct has been investigated.

With its acquisition of Countrywide in 2008, BofA has sustained high losses over settlements as a result of its subsidiary’s loans. According to the Los Angeles Times, these settlements include:

• A promise to forgive up to $3 billion in principal for Massachusetts Countrywide borrowers
• $600 million to former Countrywide shareholders
• Billions of dollars to Freddie Mac and Fannie Mae over buybacks of bad home loans
• $8.5 billion to institutional investors over the repurchase of Countrywide mortgage-backed bonds
• $5.5 billion reserved for mortgage bond investors with similar claims

California reportedly subpoenas BofA over toxic securities, Los Angeles Times, October 20, 2011

California Pulls Out of Foreclosure Talks, Wall Street Journal, October 1, 2011

More Blog Posts:
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

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Once again, Western and Southern Life Insurance Co. is suing Bank of America Corporation for the alleged misrepresentation of mortgage-backed securities that the financial firm sold to the insurer. This time, the plaintiff is seeking $63 million. Western and Southern Life’s first MBS lawsuit against BofA sought $225 million in losses over securities it bought through Countrywide Financial Corp. (Bank of America acquired Countrywide in 2008.)

In this latest ARS lawsuit, Western and Southern Life says that it purchased $134 million in MBS from Bank of America between 2006 and 2008. The company contends that the securities would go on to lose 47% of their value. Western and Southern Life claims that the financial firm disregarded its own underwriting procedures and that a lot of the loans, which had AAA-ratings when they were purchased, have since foreclosed or defaulted. The insurer is also accusing Bank of America of failing to properly examine documents pertaining to the loans, which it says were based on erroneous information (including inflated appraisals, overstated incomes, and false employment verifications).

It was just last month that Western and Southern Life filed two other MBS lawsuits. In its securities case against Morgan Stanley & Co., the insurer is seeking $68.1 million for losses it claims it sustained because the financial firm allegedly misrepresented the MBS. The insurer says that in 2006 and 2007 it bought $179 million in mortgage-backed securities from Morgan Stanley.

Also in July, Western and Southern Life sued Credit Suisse Securities over the alleged loss of $107 million in MBS that the financial firm underwrote and one of its units sold. As with its securities cases against Bank of America, Western and Southern Life claims that Credit Suisse and Morgan Stanley disregarded their standards when accepting the loans. The insurer says that between 2005 and 2008 it bought $276 million in MBS from Credit Suisse.

Although Bank of America’s agreement to settle mortgage-back securities claims by 22 private investors that purchased 530 MBS valued at $424 billion covers Countrywide loans, Western and Southern Life was not part of this arrangement. Among the institutional investors to benefit from the settlement are BlackRock, Inc., PIMCO, Metlife, Inc., the Federal Reserve Bank of New York, and Goldman Sachs.

Per that settlement, Bank of America will give $8.5 billion to Bank of New York Mellon, which, as bondholder trustee, will distribute the funds to investors. However, if the court approves this settlement, investors will still be at a disadvantage because only some 2 or 3 centers on the dollar would be represented for those that suffered financial losses.

BofA Again Sued Over MBS, Yahoo, August 25, 2011

Bank of America agrees to $8.5B Countrywide settlement, Biz Journals, June 29, 2011

Western & Southern sues over investments, Business Courier, July 29, 2011

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AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America, Institutional Investors Securities Blog, August 13, 2011

Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards, Stockbroker Fraud Blog, September 29, 2010

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investors Securities Blog, July 22, 2011

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According to six Federal Home Loan Banks, the investors of Countrywide Financial Corp.’s mortgage bonds may be entitled to three or more times more than what the proposed $8.5 billion securities settlement reached with Bank of America Corp (BAC) is offering. Bank of America acquired Countrywide in 2008.

Under the current settlement, which was reached with Bank of New York Mellon (the trustee of 22 institutional investors), Bank of America is supposed to pay those who placed money in the 530 residential mortgage securitization trusts that Countrywide had set up. Now, however, the Federal Home Loan Banks of Chicago, Boston, Pittsburgh, Indianapolis, Seattle, and San Francisco have filed a court filing seeking more information about the deal. The home loan banks claim that they also invested over $8.5 billion in the mortgage-backed securities. While the current proposal requires that Bank of America repurchase just 40% of MBS that defaulted, the FHLBs believe there may be grounds for upping the proposed settlement amount to at least $22 billion and they may want to join the case.

The six FHLBanks are not the only ones to object to BofA’s proposed settlement. Walnut Place LLC I-XI, which represents another group of Countrywide MBS investors, also has filed a court petition. They claim that Bank of New York Mellon was only attempting to arrive at an agreement for its 22 institutional investors that the rest of the investors would just have to abide by. Walnut Place LLC I-XI wants to block the current settlement and be excluded from any agreement that is finalized between BofA and Bank of New York Mellon.

Mortgage-Backed Securities
If you or your company suffered financial losses from investing in mortgage-backed securities, an experienced securities fraud attorney may be able to determine whether you have grounds for an institutional investment fraud claim.

Related Web Resources:
BofA Mortgage-Backed Securities Settlement Hits a Snag, OnWallStreet, July 22, 2011

Mortgage Investors May Be Owed Three Times More in BofA Deal, Bloomberg, July 21, 2011

Federal Home Loan Banks

Bank Of America Hit With Massive Fraud Lawsuit Over Countrywide, Texas Stockbroker Fraud

More Blog Posts:

Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M, Institutional Investors Securities Blog, March 10, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis, Stockbroker Fraud Blog, March 12, 2008

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