Countrywide Financial Inc., acquired by
Bank of America Corporation
) in 2008, recently entered into a settlement with Massachusetts
worth $17.3 million. While a portion of the settlement fee -
$11.3 million - will be utilized to compensate investors with the
Pension Reserves Investment Management Board, the remaining - $6
million - will be handed over to the state.
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Massachusetts' Attorney General (AG) Martha Coakley was probing
into the overall mortgage lending practices prevalent in the
state preceding the financial crisis of 2008-2009. The
aforementioned settlement is a consequence of this investigation,
which was looking into allegations of Countrywide's sale of
faulty mortgage-backed securities (MBS) to investors.
Massachusetts reached similar settlements with other large banks
The Goldman Sachs Group, Inc.
), The Royal Bank of Scotland Group plc,
) and JPMorgan Chase & Co. in the recent past. Further, the
AG confirmed that the state would continue its scrutiny of
controversial financial operations and see to it that the
affected investors are compensated.
BofA's intra-day stock price movement reflects a positive market
response following the announcement of the news on Jan 2, 2013.
The stock closed at $16.10 per share, up 3.4% from the previous
The positive investor sentiment is justified, as though such
settlements increase one-time legal expenses for the company, it
eases the burden in the long run. Further, these settlements help
the banks to focus on their main business, thereby aiding a
speedy economic revival.
Apart from the latest deal, BofA also reached a $500 million
mortgage settlement with investors on behalf of Countrywide, for
which it received approval from a federal judge in Dec 2013. The
plaintiffs had alleged that the quality of loans underlying home
loans were misrepresented in the offer documents while selling
RMBS from 2004 to 2007.
Countrywide acquisition has turned up as an unprofitable venture
for BofA with the litigations pertaining to its security sale
practices coming into light and thereby increasing legal
expenses. BofA bought the mortgage lender for $2.5 billion, and
since then has recorded more than $30 billion losses from bad
loans, MBS claims and lawsuits.
BofA currently carries a Zacks Rank #2 (Buy).