The current housing market has affected homeowners across the country, but the market's collapse has also angered investors who purchased bonds from mortgage companies. Bank of America has been at the center of controversy over poorly written mortgages resulting in severe losses for investors. In the most recent settlement, Bank of America and Countrywide paid out $8.5 billion in claims to such investors. This comes after a group of 22 investors demanded that Bank of America buy back the poor-quality mortgage-backed securities that its Countrywide unit sold to them before the collapse.
The investors included major financial firms such as Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management. The investors filed a case with the New York Supreme Court as a group in order to create a broader case represented by a single trustee. The group claimed that Bank of America unfairly enriched itself at the expense of investors while continuing to produce bad loans and increase service fees.
A settlement of $8.5 billion was reached to cover 530 trusts with original principal balance of $424 billion. Bank of America suffered significant losses from the settlement, which put its second-quarter loss at $8.6 to $9.1 billion - an expected quarterly loss of $3.2 to $3.4 billion, excluding the settlement and other charges, in addition to the new charges.
Following the settlement, Bank of America CEO Brian Moynihan said the agreement would minimize "future economic uncertainty" in the banking business and "clean up the mortgage issues largely stemming from our purchase of Countrywide."
The case against Bank of America has faced many challenges and complications, however. One group of bond investors refrained from the case, requesting a hearing of their own. The group, calling itself the Walnut Place, has objected to the terms of the settlement and wish to be excluded from it. The Walnut Place argues that the 22 investors in the earlier case are self-appointed and that their complaints do not represent the broader issues that bondholders have with Bank of America. The group also argues that the talks leading up to the recent settlement with Bank of America have been kept secret.
Bank of America spokesman Lawrence Grayson argues that this isn't the case and that all conversations between the bank and the investors have been publicly disclosed. He issued a statement insisting "the settlement agreement was designed to give certificate holders, like those behind the Walnut Place entities, an opportunity to have any objections heard."
If the New York Supreme Court allows the Walnut Place to be excluded from the settlement and receive their own hearing, it might pave the way for other individual investors to seek out cases of their own against mortgage giants like Bank of America. This would be a significant setback for the lender, as the settlement with the previous 22 investors was widely seen as a demonstration of the bank's ability to put its mortgage woes in the past.
The uncertainty of the outcomes of such claims has put a damper on Bank of America's stock for obvious reasons. Stock has declined almost a third since Brian Moynihan took over as CEO in January of last year, with stock value down 31% since early 2010. Bank of America stock had climbed 4% on the day of the settlement due to belief that such uncertainty was behind the company, but by the first week in July stock was down nine cents, back to $11.
Poorly written mortgages have been the cause of financial woes for many different people, from investors in these recent cases to homeowners across the nation. If you are struggling with your mortgage payments, do not go it alone. It is always best to consult an experienced attorney when making any decisions regarding your mortgage, and we here at P&P can make sure you are properly guided through the process. Contact us today to schedule a free consultation and learn how to get your finances back on track.
