Weekend Economists: Spock Lives! March 6-8, 2015

[Demeter]

28. What the $8.5B Settlement Deal Means for BofA - Analyst Blog

http://finance.yahoo.com/news/8-5b-settlement-deal-means-230111390.html

After a challenging year with legal issues and settlements, Bank of America Corporation BAC can now rejoice on finally unburdening itself of the multi-year $8.5 billion mortgage settlement deal after the Manhattan appellate court approved the settlement entirely in the bank’s favor yesterday. The court decision put an end to the opposition faced by the bank since 2011 on account of investors being dissatisfied with the compensation paid to them. BofA can now focus on reviving profitability by concentrating on core operations with all its major litigations settled.

Flashback

In Jun 2011, BofA had reached an agreement to pay $8.5 billion for its legacy Countrywide Financial Corp. mortgage repurchase and servicing claims. The settlement took place between 22 investors who suffered significant losses for their investments in mortgage-backed securities (MBS) that were sold by Countrywide prior to the housing market failure. BofA acquired Countrywide in 2008. The agreement basically covered most of BofA’s legacy Countrywide- issued first-lien MBS repurchase exposure. It represented 530 trusts with original principal balance of $424 billion and a total current unpaid principal balance of about $221 billion.

The group of investors, including BlackRock Inc. BLK, PIMCO, MetLife Inc. MET and the Federal Reserve, had alleged that prior to the financial crisis, Countrywide had sold securities that were tied to bad-quality loans. The loans were not even well-managed by The Bank of New York Mellon Corp. BK, which was the trustee for the MBS. Therefore, these investors sought a buyback relief in MBS that were offloaded by Countrywide.

Current Update

In Jan 2014, the settlement agreement was largely approved by New York state Judge Barbara Kapnick. However, the loan-modification claims by investors were carried forward. The present decision under a panel of five judges refuted the claims stating that BNY Mellon as a trustee did not misuse its authority over the settlement. With full approval from the court, BofA can now put the entire matter to rest and move forward without the weight of legal settlements on its financials.