As per a report from Reuters,
Bank of America Corp.
) has challenged the Federal authorities' claim of $2.1 billion
as penalty. In January, the authorities had sought this amount
from BofA for the sale of risky residential mortgage-backed
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While responding to the case, BofA stated that the authorities
had committed a mistake by calculating the penalty amount on the
total gain from the sale of loans. As per the law, the penalty
amount should be based on net gains made while selling the risky
RMBS. Since the company did not make any profit from the sale, it
claimed that no penalty should have been imposed on it.
The RMBS were sold by Countrywide Financial Corp., which was
acquired by BofA in 2008, to
) between Aug 2007 and May 2008. The company was accused of
selling the loans underlying these RMBS without properly
assessing the creditworthiness of borrowers.
The Federal prosecutors accused Countrywide of creating the
program 'high-speed swim lane' (HSSL) or 'Hustle,' which rewarded
employees for the quantity rather than quality of loans. These
loans were then bundled and sold to Fannie Mae and Freddie Mac.
Earlier, the authorities had sought a fine of nearly $864 million
from BofA. However, the figure later rose to $2.1 billion, after
calculation of the total revenue that was derived from the loans.
Notably, U.S. District Judge, Jed Rakoff, will decide the final
penalty amount after the hearing that begins on Mar 13 is over.
BofA continues to suffer from flaws in Countrywide's transactions
prior to the financial crisis. The company has incurred more than
$40 billion in losses from bad loans, RMBS claims and lawsuits.
Though BofA has settled quite a few cases pertaining to
Countrywide, it is still braced with several litigations that
could weigh on its financials going forward.
Currently, BofA carries a Zacks Rank #3 (Buy). A better-ranked
major global bank worth considering is
), with a Zacks Rank #2 (Buy).