B Of A Subsidiary Continues To Haunt The Firm
California Attorney General Kamala Harris is expanding the state’s investigation of major mortgage lenders, according to the Los Angeles Times. Reportedly, subpoenas have been issued to bank of America to discover documents showing that the bank and its Countrywide Financial subsidiary packaged, marketed and sold toxic securities to California investors under false pretenses. The state is looking into the sales of the troubled mortgage backed securities (MBS) to both individual and institutional investors
Many have seen this aggressive attack on Bank of America to be a way for California to push for a larger settlement. The state walked away from settlement discussions recently involving a coalition of state attorneys general pursuing a wide scale agreement of the foreclosure mess. Attorney General Harris has embarked on her own investigation of all aspects of the mortgage lenders, from lending to securitization to marketing to selling and all other aspects of mortgage and securities fraud.
Countrywide Financial Corporation was by far the country’s largest mortgage lender back in 2007 prior to the housing bust. Back then the firm tried to corner the market by taking on the highest of risk mortgages by loaning money to borrowers without verifying income or assets, among other things. These loans came to be called “Ninja” loans, standing for “no income, no jobs, no assets.” To make matters worse, borrowers were allowed to make such small payments that loan balances increased as payments were made instead of decreasing. These subprime loans given to borrowers without any credit history or credit check were packaged into subprime mortgage backed securities (MBS) and marketed and sold to investors who suffered massive losses when the housing market collapsed and the value of the investments plummeted.
Other Bank of America settlements include a settlement with prior California Attorney General Jerry Brown in conjunction with other states to cut payments by as much as $8.6 billion on mortgages where borrowers had allegedly been abused; an agreement in 2010 to forgive $3 billion in principal for Massachusetts borrowers with countrywide mortgages; a $600 million deal in 2010 to settle a securities fraud lawsuit with Countrywide shareholders; billions of dollars in payments to Fannie and Freddie to settle demands to repurchase flawed home mortgages and finally, an agreement in June 2011 to pay $8.5 billion to 22 institutional investors for bonds backed by Countrywide mortgages, plus $5.5 billion to pay other future claims by investors victimized by the toxic mortgage bonds.