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Bank of America Corp Settles Fraudulent Mortgage-Backed Securities Lending Charges

bidnessetc.com | May 5, 2016

By Abdul Wasay

Bank of America Corp. (NYSE:BAC) has agreed to settle the charges over the sale of mortgage-backed securities prior to the financial crisis of 2008. The Federal Home Loan Bank of Seattle filed the lawsuit in 2009. The lender reached a settlement worth $190 million, according to the filing cited by Bloomberg.

The settlement agreement was reached in April, but the regulatory filing was released yesterday. Subsequently, the bank maintained that the buffer amount for the settlement was set aside previously, Bloomberg suggested.

Cost Cuts and Internal Controls

Market conditions began to deteriorate significantly during the second half of last year, which continued in 2016. Banks have put together various strategies to deal with turbulent markets, and costs related to legal matters. As turbulence is markets continued, banks witnessed a decline in investment banking, and saw a trading revenue slump. Bank of America emphasized on further cost cuts, to release pressure on revenues, and improve profitability.

Bank of America was able to resolve most of the legal charges. Litigation charges fell to $1.2 billion in 2015, from $5.6 billion in 2011. Throughout the fiscal year 2015 (FY15), cost cuts proved beneficial for the bank. In FY15, the bank was able to reduce non-interest expenses by 24%, compared to the preceding year. Consequently, the declined expenses in part drove the net income increase in 2015, to $15.88 billion. In 1QFY16, the litigation charges stood at $388 million, in-line with 1QFY15. The bank is determined to “resolve remaining legacy issues.”

Lower litigation expenses, with proper internal controls will ensure the success of these measures. Last year, the Federal Reserve rejected Bank of America’s capital plans, citing weakness in the lender’s internal controls. Furthermore, the bank warned its shareholders in the annual meeting, of additional cost cuts this year. Bidness Etc believes the bank should ensure that proper internal controls are in place, to fortify success with cost reduction.

Previous Litigation Charges

Bank of America fell under the spotlight for mortgage related lawsuits after it acquired Countrywide Financial Corp. in 2008. The acquisition brought it more legal expense-laden fortunes. The number of lawsuits related to residential mortgage-backed securities (RMBS) continued to haunt the bank.

In 2014, Bank of America reached a settlement agreement worth $16.65 billion, over financial fraud which led to the financial crisis in 2008. The settlement was marked “the largest civil settlement with a single entity in American history,” and was part of the larger effort. President Obama’s Financial Fraud Enforcement Task Force, and the Residential Mortgage-Backed Securities (RMBS) Working Group were meant to ensure restitution to affected consumers and investors. In the same year, Bank of America also settled charges with insurance giant American International Group (AIG). The bank agreed to pay $650 million to the insurance company to resolve claims over the fraudulent selling of defected MBS products to investors.

MBS Legal Settlement at Other Banks

Goldman Sachs Group agreed to settle the wrongdoings related to MBS for $5.1 billion last month. The bank was alleged to have participated in financial fraud, while selling faulty MBS products to investors and customers.

A number of banks agreed to settle the charges for wrongdoing related to RMBS with the National Credit Union Administration, which cost investors billions in losses. UBS settled the charges for $69.8 million in April. Prior to that, the Royal Bank of Scotland, Morgan Stanley, and eight other banks also participated in a settlement agreement.




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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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