Bank of America Corporation (BAC) is being sued by a group headlined by Pacific Investment Management Co. (PIMCO), Blackrock Inc. (BLK), and the NY Federal Reserve over allegations that Countrywide, which BAC bought in 2008, improperly serviced mortgage loans. They are seeking to force Bank of America Corporation (BAC) to repurchase soured mortgages packaged into $47 billion in bonds by Countrywide. The NY Fed in 2008 acquired mortgage debt through the rescues of Bear Stearns and American International Group Inc. (AIG). Bank of America (BAC) closed off more than 4% Tuesday after the NY Fed surprisingly joined the BAC mortgage putback fight. It is one thing for a private firm like PIMCO to pursue legal action in order to recoup monies, but it is entirely another for NY Fed, on behalf of American taxpayers, to pile on the effort to weaken Bank of America. In another twist, as noted by Bespoke, Bank of America actually owns a significant stake in Blackrock Inc. (BLK) one of the other members of the consortium suing BAC. Needless to say, Bank of America has seen better days.
Last month, the debt’s trustee Bank of New York Mellon Corporation (BK) declined to investigate mortgage files in response to demands from a bondholder group. That group has since expanded, and this time around the big boys are joining the fight. In addition to the aforementioned names, Metlife Inc., the biggest US life insurer, and TCW Group Inc., are among investor groups seeking repurchases due to poor record keeping and faulty appraisals, among other alleged misstatements. Bank of America CEO Brian Moynihan pledged today to ‘defend shareholders’ against unjustifed demands to buy back faulty mortgages.
The case against Countrywide is not cut and dry, however. For further analysis on the issue from someone with much more legal expertise than I, read this post from Yves Smith at naked capitalism.
