BANKING

Banks contest BofA’s $8.5B Countrywide settlement

BLOOMBERG FILE PHOTO/DANIEL ACKER
FOUR FINANCIAL institutions filed court documents on Friday against BofA's $8.5 billion mortgage claim agreement, arguing that the settlement is not large enough.
Posted 2/4/13

NEW YORK - Three Federal Home Loan Banks and a fourth financial institutions filed court documents on Friday against Bank of America Corp.’s $8.5 billion agreement to settle claims related to mortgages issued by its Countrywide unit, The New York Times reported.

According to the news source, the four financial institutions – Federal Home Loan Banks in Boston, Chicago and Indianapolis and Triaxx – said the $8.5 billion settlement agreed to by Bank of America was not enough and that the bank’s bad mortgage practices continued well past the company’s acquisition of Countrywide.

The complaint, filed in the state Supreme Court in Manhattan, cited instances in which Bank of America put its own interests ahead of its shareholders’ when modifying home mortgages, according to the Times.

The complaint said that BofA reduced the principal in first mortgages but left second mortgages it held on some properties intact, allegedly allowing investors to absorb six-figure principal reductions without touching its own assets, said the Times.

The four banks that filed the documents said Bank of America modified more than 134,000 securitized loans, adding up to a total principal balance of $32 billion.

According to the news source, Bank of America spokesman Lawrence Grayson defended the bank’s mortgage principal reductions.

The $8.5 billion Countrywide mortgage settlement is scheduled for a hearing in New York State Supreme Court in May.

“Modifying mortgages for homeowners in severe distress is critical to the ongoing economic recovery and is encouraged by the government at all levels,” he told the Times. “It is difficult to see how federally regulated entities like the Federal Home Loan Banks would seek to attack that practice which helps families to stay in their homes and in no way violated the contracts at issue.”

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