BofA Entangled in New Mortgage Mess Questions

Officials at Bank of America have long lamented the burden they unexpectedly took on with the 2008 acquisition of Countrywide Financial, one of the largest subprime mortgage firms in the country. Countrywide’s practices have reportedly cost Bank of America upwards of $40 billion so far following substantiation of widespread foreclosure abuse claims. monthlyfee5.jpg

But our Miami foreclosure lawyers understand that new documents filed recently in the New York Supreme Court suggest that shady lending practices continued even after that acquisition, with the bank showing a continued interest in furthering its own bottom line, rather than rectifying the mess those troubled mortgages created for investors.

The New York Times reports that the court documents were filed by three Federal Home Loan Banks in different cities, as well as a mortgage securities investment firm. The plaintiffs hold that the $8.5 billion settlement the banking giant agreed to pay two years ago to free themselves of liability for Countrywide’s actions is in fact egregiously low. The plaintiffs say the settlement does little to compensate the thousands of small investors who trusted the company to act prudently with their money.

The plaintiffs are requesting that the judge deny the settlement agreement and force the bank to make a bigger payout.

Among the biggest complaints is the allegation that Bank of America has yet to repurchase the high-risk mortgages it doled out after lowering the principal and payments on the loans. If true, this would be a clear violation of the agreement it made with investors who initially bought those bundled mortgage securities.

Nationwide real estate records reveal that the bank has worked to modify nearly 135,000 loans, reducing principal balances by more than $30 billion. Yet, the bank didn’t take action to lower the principal on its second mortgages on those same homes, even though the owner of the home equity line of credit is historically the one that takes a loss – not the owner of the first mortgage. In fact, this practice reportedly allowed the bank to boost its potential of being repaid in full for its home equity line, as it carried more than $115 billion in home equity loans in the third quarter of last year.

These actions have cost investors dearly.

One example highlighted by the plaintiff involves a 2006 subprime loan extended for $575,000. Four years later, the bank agreed to lower the owed principal on the first mortgage down to about $280,000. Simultaneously, however, the bank’s $110,000 home equity credit line remained unchanged. Meanwhile, investors took a $300,000 loss.

In another case, the bank was shown to have held onto a $170,000 home equity line after it modified the first mortgage owned by investors. So investors ended up absorbing a nearly $400,000 loss, while the bank didn’t suffer anything.

These are just a few of the highlights born of extensive research by investment firm Triaxx, which reportedly combed through hundreds of securities handed down by Countrywide in just a two-year time frame. The firm even created a database of these transactions over the last 10 years.

While we can’t predict the judge’s decision in this case, we do know that this same database was accepted in a separate mortgage lawsuit against a mortgage subsidiary of Ally Financial.

Of course, it’s not just these two banks that are to blame — the problem has been that loan servicers unsurprisingly have refused to turn over the kind of detailed loan data showing their misdeeds, absent a court order.

But these investment firms say they had no choice, as the $8.5 billion settlement would repay their clients about 2 cents for every $1 invested.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

Additional Resources:
Fresh Questions Over a Bank of America Settlement, Feb. 3, 2013, By Gretchen Morgenson, The New York Times
More Blog Entries:
Foreclosure Settlement Deal Timing Strategically Benefits Banks, Jan. 20, 2013, Miami Foreclosure Lawyer Blog