Bank of America close to $8.5bn settlement over sub-prime loans

Group of investors includes the Federal Reserve Bank of New York, Pimco Investment Management, the world’s largest bondholder, and BlackRock Financial Management Bank of America (BoA) is close to finalising a deal to pay $8.5bn (£5.3bn) to settle claims by a group of investors that the bank sold them poor-quality mortgage-backed securities that went sour when the housing market tanked, according to a person familiar with the settlement talks. The North Carolina-based bank was continuing talks late on Tuesday with the group, which includes the Federal Reserve Bank of New York, Pimco Investment Management, the world’s largest bondholder, and BlackRock Financial Management. It is expected to announce an agreement as early as Wednesday, the person said on condition of anonymity because the matter was still developing. The deal comes eight months after the group fired off a letter to Bank of America demanding that it repurchase $47bn in mortgages that its Countrywide unit sold to them in the form of bonds. The investors have argued that Countrywide’s practice of modifying loans found to have faulty paperwork or those written outside of normal underwriting standards breached signed agreements with the investors. By continuing to service bad loans rather than speeding up foreclosures, the group has claimed that Countrywide ran up servicing fees, enriching itself at the expense of investors. The New York Fed is involved because it took over assets held by American International Group, which faltered under the weight of bad home loans that it insured. Bank of America, which paid $4bn for Countrywide in 2008, has dismissed suggestions that its handling of loan modifications and other efforts to prevent foreclosure have violated the terms of the mortgage-backed securities that the investors hold. In November, CEO Brian Moynihan said he was in day-to-day “hand-to-hand combat” with investors’ demands. But the combined effect of the Countrywide deal, mortgage crisis and the risk overhang of the soured loans have been a drain on BoA’s bottom line and stock price, eventually prompting a reversal in strategy. Since the beginning of the year, the bank has struck large settlements with multiple investors. In January, the lender paid $2.6bn to settle buyback claims on home loans sold to Fannie Mae and Freddie Mac. And in April, the bank agreed to pay up to $1.6bn to Assured Guaranty, an insurer that also pressed the bank to repurchase shoddy mortgages. If approved, the latest settlement would address a significant remaining slice of Bank of America’s mortgage buyback claim risk. A Bank of America spokesman could not immediately be reached for comment. Bank of America US housing and sub-prime crisis US economy United States guardian.co.uk

Posted by on June 29, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.