LOS ANGELES (12/11/13)--A $500 million settlement between Bank of America and investors who claimed its Countrywide unit misrepresented mortgage-backed securities has been finalized by a federal judge in Los Angeles.
U.S. District Judge Mariana Pfaelzer denied investors the chance to recoup losses from Countrywide's parent company. Pfaelzer followed prior rulings and agreed with the Charlotte, N.C.-based multinational bank that allowing investors to seek additional damages could bankrupt Countrywide (Bloomberg.com Dec. 10).
The class-action lawsuit was based on allegations that Countrywide misled investors about the quality of home loans at the heart of mortgage-backed securities. Countrywide was taken over by Bank of America in 2008, a few months before the subprime mortgage contributed to the global financial system collapse.
Bank of America is also on the verge of settling an $8.5 billion lawsuit over mortgage-backed securities in New York state court. That deal seeks to resolve a dispute over Countrywide's alleged breach of contract for failing to replace delinquent loans aggregated for the financial instruments.
Bank of America still faces litigation from investors who opted out of the class-action lawsuit finalized Tuesday. They're seeking claims on securities excluded by Pfaelzer after the first case was filed in 2007.
The National Credit Union Administration has sued a number of Wall Street banks in similar cases. In November, JP Morgan agreed to pay the NCUA $1.4 billion in a settlement over mortgage-backed securities issued, underwrote and sold to now-defunct corporate credit unions in 2006 and 2007 (News Now Nov. 20). The wholesale lenders collapsed in 2009 due, in part, to the faulty instruments.
The federal regulator has also settled claims of more than $170 million with Citigroup, Deutsche Bank Securities and HSBC. It is still involved in suits against RBS Securities, Wachovia Capital Markets and Wells Fargo, Barclay's Capital Inc., Goldman Sachs, and UBS Securities.