The much awaited legal settlement for
Bank of America Corporation
) has finally been approved. New York state judge Barbara Kapnick
approved the $8.5 billion settlement (announced in Jun 2011) of
BofA with institutional investors over soared mortgages.
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While approving the settlement, Kapnick dismissed claims by a
group of investors led by
American International Group, Inc.
) and ruled that
The Bank of New York Mellon Corporation
), the trustee representing the investors, acted mostly in good
faith at the time of consenting to the agreement.
However, the judge withheld approval on one account stating that
the trustee did not act reasonably. Kapnick stated that BNY
Mellon should have been more diligent while settling modified
mortgage repurchase claims worth roughly $31 billion.
Earlier in Jun 2011, BofA reached an agreement to pay $8.5
billion for its legacy Countrywide Financial Corp. mortgage
repurchase and servicing claims. The settlement took place
between 22 investors who suffered significant losses for their
investments in 530 mortgage backed securities (MBS) trusts that
were sold by Countrywide prior to the financial crisis. BofA
acquired Countrywide in 2008.
The group of investors, including
), AIG, Pacific Investment Management Co. and MetLife Inc.
alleged that Countrywide had sold securities that were tied to
bad-quality loans. Further, the loans were not even well-managed
by the trustee. Therefore, the investors sought a buy back relief
in MBS that was offloaded by Countrywide.
Notably, the settlement was opposed by AIG on the grounds that
BNY Mellon did not make enough efforts to recover money for the
distressed investors. The insurer major stated that the
settlement amount was inadequate to compensate the losses
incurred by investors. Though now AIG's allegations have been
dismissed by the judge, the former stated that the case is far
from over as the judge did not fully approve the settlement.
Additionally, shares of BofA fell 1.1% in intra-day trading on
Friday. The investors expected a clear victory for BofA, but they
were slightly disappointed with the outcome of the judgment.
Nevertheless, the Fitch Rating stated the judgment a 'credit
positive' for BofA. The agreement basically covered most of the
company's legacy Countrywide- issued first-lien MBS repurchase
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, MBS claims and lawsuits.
Though the company has settled quite a few lawsuits pertaining to
Countrywide, it still faces numerous litigations that could weigh
on its financials going forward.
Currently, BofA carries a Zacks Rank #2 (Buy).