The legal quagmire for Bank of America Corporation (BAC) has intensified. It is in trouble again for the sale of risky residential mortgage-backed securities (RMBS) by Countrywide Financial Corp., which was acquired by the bank in Jul 2008. The Federal regulators are seeking a fine of approximately $864 million from BofA for the sale of RMBS to Fannie Mae (FNMA) and Freddie Mac (FMCC).
These loans were sold by Countrywide between Aug 2007 and May 2008. The loans underlying these RMBS were given without properly assessing the creditworthiness of borrowers.
The Federal prosecutors accused Countrywide of creating the program ‘high-speed swim lane’ (:HSSL) or ‘Hustle’, which rewarded employees for the quantity rather than quality of loans. These loans were then bundled and sold to Fannie Mae and Freddie Mac.
Moreover, as per the filing in Federal District Court in Manhattan, the government is seeking compensation from Rebecca Mairone, a former executive at Countrywide unit, who was found liable by the jury. The fine will likely take into consideration her ability to pay.
Notably, the aggregate penalty will be decided by U.S. District Judge Jed Rakoff. BofA is expected to respond to these allegations by Nov 20.
BofA continues to suffer from the conduct of Countrywide in the period before the financial crisis. The company has incurred more than $30 billion in losses from bad loans, MBS claims and lawsuits. Though BofA has settled quite a few lawsuits related to Countrywide, it still faces numerous litigations that could weigh on its financials going forward.
Currently, BofA carries a Zacks Rank #3 (Hold). A better performing major global bank worth considering is BankUnited, Inc. (BKU), which has a Zacks Rank #2 (Buy).