Bank Of America Thought Things Couldn't Get Worse But They Did
Just when Bank of America Corporation thought it was close to resolving its Countrywide Financial problems and things couldn’t get worse, they did. U.S. Bancorp has now filed suit against the firm to force Bank of America to buy back $1.75 billion worth of bad home loan bonds, according to the Wall Street Journal. This comes on the heels of the bank selling off its assets in recent weeks, including half of its stake in the China Construction Bank for $8.3 billion and getting rid of its Canadian and European credit card units carrying heavy loan balances. Bank of America seems to be attempting to shed as many of its assets as possible to generate capital to cover the Countrywide debacle without having to sell off the valuable Merrill Lynch unit. It also follows a suit filed by Western and Southern Life Insurance Co. for $63 million for losses it sustained due to investments in mortgage-backed securities (MBS) it sold to the insurer. Very possibly there is a noticeable trend being established and unfortunately continuing for Bank of America.
This latest lawsuit by U.S. Bancorp is just another migraine headache related to the 2008 purchase of the beleaguered Countrywide Financial Corporation by Bank of America. The ramifications of that deal left Bank of America holding the bag on literally hundreds of thousands of soured loans and mounting legal issues from burned investors who owned mortgage backed securities (MBS). The lawsuit seeks to have Bank of America buy back the delinquent loans that Countrywide made in a “systemic failure” to comply with underwriting guidelines. According to the petition filed, significantly more than half of the loans examined were already soured before they were securitized and sold to investors. One specific example was an individual who took out a loan in 2005 for $737,250. The loan was made on the representation that the individual had a monthly income of $16,800 or $201,600 for the entire year, when in fact he had no income whatsoever.
Bank of America thought they had gotten the Countrywide issue resolved in June when the firm agreed to pay $8.5 billion to settle the mortgage backed securities (MBS) related claims. The settlement is being challenged by various investor groups and state attorneys general advising the court that they do not have enough information to evaluate whether the deal is fair or not.