BofA Challenges $2.1B Claim in RMBS Case - Analyst Blog

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As per a report from Reuters, Bank of America Corp. ( BAC ) has challenged the Federal authorities' claim of $2.1 billion as penalty. In January, the authorities had sought this amount from BofA for the sale of risky residential mortgage-backed securities (RMBS).

While responding to the case, BofA stated that the authorities had committed a mistake by calculating the penalty amount on the total gain from the sale of loans. As per the law, the penalty amount should be based on net gains made while selling the risky RMBS. Since the company did not make any profit from the sale, it claimed that no penalty should have been imposed on it.

The RMBS were sold by Countrywide Financial Corp., which was acquired by BofA in 2008, to Fannie Mae ( FNMA ) and Freddie Mac ( FMCC ) between Aug 2007 and May 2008. The company was accused of selling the loans underlying these RMBS without properly assessing 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.

Earlier, the authorities had sought a fine of nearly $864 million from BofA. However, the figure later rose to $2.1 billion, after calculation of the total revenue that was derived from the loans. Notably, U.S. District Judge, Jed Rakoff, will decide the final penalty amount after the hearing that begins on Mar 13 is over.

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, RMBS claims and lawsuits. Though BofA has settled quite a few cases pertaining to Countrywide, it is still braced with several litigations that could weigh on its financials going forward.

Currently, BofA carries a Zacks Rank #3 (Buy). A better-ranked major global bank worth considering is BB&T Corp. ( BBT ), with a Zacks Rank #2 (Buy).

BANK OF AMER CP (BAC): Free Stock Analysis Report

BB&T CORP (BBT): Free Stock Analysis Report

FREDDIE MAC (FMCC): Get Free Report

FANNIE MAE (FNMA): Get Free 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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