BofA's $8.5B Settlement Deal Opposed - Analyst Blog

By Zacks Equity Research,

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Bank of America Corporation 's ( BAC ) $8.5 billion mortgage settlement deal is facing opposition from New York's attorney general ( AG ), Eric Schneiderman. According to the AG, the compensation that BofA is giving to the investors is inadequate compared to the losses incurred by them. This forced him to file papers in the New York State Supreme Court justice department for permission to intervene in the case.

The objection to mortgage settlement deal comes after the case was transferred from the federal to state court in late February. Earlier, in August 2011, New York AG had raised objection against the deal and won the approval of the federal court judge to intervene and take part in the case. But, with the settlement deal again transferred to the state court, he has to file for the permission to participate in the case again.

BofA's settlement deal requires the consent of New York State Supreme Court before the company can proceed with the distribution of the compensation among the investors.

The Story Behind

In June 2011, BofA had 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 mortgage backed securities (MBS) that were sold by Countrywide prior to the housing market failure. BofA acquired Countrywide in 2008.

The agreement basically covered most of BofA's legacy Countrywide- issued first-lien MBS repurchase exposure. It represented 530 trusts with original principal balance of $424 billion and total current unpaid principal balance of about $221 billion.

The group of investors, including BlackRock Inc. ( BLK ), PIMCO, MetLife Inc. ( MET ) and the Federal Reserve, had alleged that prior to the financial crisis, Countrywide had sold securities that were tied to bad-quality loans. The loans were not even well-managed by The Bank of New York Mellon Corporation ( BK ), which was the trustee for these MBS. Therefore, these investors sought a buyback relief in MBS that were offloaded by Countrywide.


The acquisition of Countrywide substantially increased BofA's mortgage exposure compared with its peers. Following the collapse of the housing market, mortgage repurchases claim risk for the company grew manifold. This has significantly drained the company's bottom line over the last several quarters.

Now, with the new objections raised by the New York AG, there might be a delay in getting the approval. However, if the New York AG participates in the settlement deal, the investors will have a chance to get a better deal from BofA.

Currently, the shares of BofA have a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Additionally, we maintain our long-term "Neutral" recommendation on the stock.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report
BANK OF NY MELL ( BK ): Free Stock Analysis Report
BLACKROCK INC ( BLK ): Free Stock Analysis Report
METLIFE INC ( MET ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AG , BAC , BK , BLK , MET

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