The Federal authorities are now seeking $2.1 billion in
Bank of America Corp.
) for the sale of risky residential mortgage-backed securities
(RMBS). The RMBS were sold by Countrywide Financial Corp., which
was acquired by BofA in 2008, to
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The latest penalty is more than double the fine of nearly $864
million demanded earlier. The present amount is based on the
total revenue that BofA earned from the loans, while the earlier
amount took into consideration the losses incurred by Fannie Mae
and Freddie Mac from the purchase of RMBS.
The case revolves around the RMBS sold by Countrywide between Aug
2007 and May 2008. The loans underlying these RMBS were given
without proper assessment of the creditworthiness of borrowers.
The Federal prosecutors accused Countrywide of creating the
program 'high-speed swim lane' (HSSL) or 'Hustle,' which rewarded
employees for the quantity rather than quality of loans. These
loans were then bundled and sold to Fannie Mae and Freddie Mac.
Notably, BofA has until Feb 26 to respond to the latest filing,
while the aggregate penalty will be decided by U.S. District
Judge Jed Rakoff after the hearing starts on Mar 13.
BofA continues to suffer from flaws in Countrywide's transactions
prior to the financial crisis. The company has incurred more than
$30 billion in losses from bad loans, MBS claims and lawsuits.
Though BofA has settled quite a few lawsuits related to
Countrywide, it still faces numerous litigations that could weigh
on its financials going forward. One such legal headwind is the
$8.5 billion settlement with institutional investors that is
still awaiting court approval.
Currently, BofA carries a Zacks Rank #2 (Buy). Another major
global bank worth considering is
), which has the same Zacks Rank as BofA.