In yet another setback, Countrywide Financial - acquired by
Bank of America Corporation
) in 2008 - has been sued by
American International Group, Inc
) for losses worth millions of dollars incurred by the latter.
AIG has accused BofA of selling high-risk residential
mortgage-backed securities (RMBS).
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However, a U.S. District Judge partially dismissed the claim
based on the misrepresentation of underwriting practices and
deceptive statements. Alongside, the judge brushed aside
allegations against underwriters - Merrill Lynch and Bank of
America Securities. AIG accused the companies of being aware of
the misdeeds at BofA.
Nonetheless, the judge permitted AIG to pursue claims related to
fraudulent practices by BofA. This major U.S bank can be sued for
making false claims of complying with the underwriting guidelines
in its offer document. Further, the court permitted AIG to
re-plead its charges against BofA. AIG has been granted
permission by the court to claim compensation amounting to more
than $7 billion from BofA for the losses incurred.
The case is related to the litigation suit which was filed
against BofA in 2011. As per the filing, AIG demanded
compensation worth $10 billion from BofA for providing deceptive
information regarding the loans underlying the investment. BofA
misrepresented loans exceeding $28 billion, which it claimed were
issued in accordance with the underlying guidelines. However, AIG
countered this by stating that in actuality the guidelines had
been abandoned long back.
Of late, BofA has been combating various legal claims from
investors who purchased mortgage securities from the bank. To
date, BofA has paid over $40 billion in legal settlements related
to regulatory and borrower issues associated with the purchase of
Countrywide and Merrill Lynch & Co.
BofA recently reached an agreement to settle its legal tussle
). As per the agreement, BofA is required to pay nearly $1.6
billion in cash and return $137 million worth of MBIA's 5.70%
senior notes maturing in 2034. Further, the company is required
to provide a senior secured credit facility worth $500 million to
MBIA Insurance Corp, MBIA's structured finance division.
In Jan 2013, BofA announced a settlement worth nearly $11.6
Federal National Mortgage Association
) to end its mortgage related woes. Additionally, in 2011, the
company reached an $8.5 billion settlement deal with private
investors who had bought the company's risky MBS.
The pilling litigations are apprehended to mar its overall
growth. Further, such suits are expected to elevate the company's
expenses besides tarnishing its image.
Currently, BofA carries a Zacks Rank #3 (Hold).