BofA (BAC) Agrees to Settle Mortgage Crisis Suit With Ambac
Bank of America Corporation’s BAC latest fine will close the door on its last major litigation over mortgage bonds that stemmed from the 2008 financial crisis. BofA has agreed to pay $1.84 billion to resolve claims by Ambac Financial, a bond insurer, regarding residential mortgage-backed securities.
Ambac claims that between 2004 and 2006, it insured certain mortgage-backed securities backed by poorly underwritten Countrywide Financial loans. Countrywide is a lender whom BofA acquired in 2008.
Countrywide’s purchase put BofA at the center of years of litigation over who was to blame for a mortgage-market meltdown. The bank has already paid more than $50 billion to settle regulatory probes and litigation arising from its purchase of Countrywide.
Per Ambac’s claims, almost 80% of the loans were the product of poor underwriting standards or had other deficiencies that violated insurance agreements. Also, Ambac claimed that BofA failed to repurchase the loans as required.
Thus, Ambac sought to recover billions of dollars in insurance claims that it paid to cover investor losses on the securities that were backed by loans from Countrywide.
Ambac also alleged that Countrywide’s CEO, Angelo Mozilo, knew that the majority of its mortgages were questionable but still encouraged employees to approve them as part of a goal to originate one out of every three home loans in the United States.
However, Countrywide’s lawyers have been saying that Ambac performed its own risk analysis when it agreed to insure the bonds and, hence, should have been aware that the “securitizations had significant payment risks.”
Bank of America has declined to comment on the settlement. The CEO of Ambac, Claude LeBlanc, stated that the company “is very pleased to have reached this settlement.”
Notably, the $1.84-billion settlement is expected to result in third-quarter pre-tax expenses of $354 million for BofA. According to a company filing, the expense translates into 3 cents per share.
So far this year, shares of BofA have lost 30.9% compared with the industry's 27.1% decline.
Image Source: Zacks Investment Research
Currently, BAC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Financial Firms Facing Lawsuits
The Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) penalized several major Wall Street banks (including Bank of America) over “widespread and longstanding failures” to maintain and preserve records of electronic communications between traders and their clients.
Some of the big names are Barclays, Citigroup, Credit Suisse, Goldman Sachs GS and Morgan Stanley MS. Bank of America faced the largest fine of $225 million, while others, including MS and GS, had to pay $200 million each.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
Morgan Stanley (MS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
