In a major development, another litigation overhang has been
Bank of America Corporation
). Recently, the bank received approval from a federal judge
regarding the $500 million Countrywide Financial Inc. mortgage
settlement deal. Notably, BofA acquired Countrywide in 2008.
The plaintiffs had filed a class action lawsuit against BofA for
misrepresenting the quality of underlying home loans in the offer
documents while selling residential mortgage-backed securities
(RMBS) from 2004 to 2007. Though these RMBS had the highest
credit ratings, the housing market collapse in 2008 caused their
ratings to fall to "junk" status.
The plaintiffs included Maine State Retirement System, Iowa
Public Employees System, the Western Conference of Teamsters
Pension Trust Fund and Federal Deposit Insurance Corp. (FDIC),
The settlement between BofA and the plaintiffs was reached in Apr
2013 and it gained preliminary approval from the court in August.
However, in October, several investors including FDIC raised
objections to the deal on grounds of its lack in fairness and
adequacy. Notably, while approving the settlement last week, the
U.S. District Court for the Central District of California
declared that the deal was fair and reasonable.
The court approval resolves nearly 75% of BofA's RMBS litigation
claims related to Countrywide. Additionally, the company is still
awaiting court approval for $8.5 billion settlement with nearly
22 institutional investors related to the sale of risky MBS.
Earlier this month, BofA announced a mortgage settlement deal
), resolving all outstanding and probable representations and
warranties claims on RMBS. The deal is expected to put an end to
the company's representations and warranties claims related to
loans sold to Freddie Mac and
) before the financial crisis.
Despite the latest approval, BofA still faces many investigations
and litigations on similar issues. These will likely impact its
financial stability going forward.
Currently, BofA carries a Zacks Rank #3 (Hold). A better-ranked
finance stock worth considering is
SVB Financial Group
), which carries a Zacks Rank #2 (Buy).
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