Bank of America Mortgage Settlement: Big Banks Could Be Forced to Repay $45 Billion
Eight months ago, when approached by investors to repay a portion of their losses in mortgage bonds, Bank of America CEO Brian Moynihan said no way. He said that his firm had followed the rules and that he was going to fight this one to the end. The outcome of that fight may indicate that the big banks are far from paying their tab for the mortgage mess. On Tuesday, Bank of America reportedly agreed to pay $8.5 billion to investors who lost money on mortgage bonds purchased before the housing bust.
The settlement covers $424 billion dollars in bonds that were tied to mortgage lender Countrywide, which Bank of America purchased in early 2008. On that basis, $8.5 billion seems small, and that Bank of America got away with a good deal. But Tuesdays settlement also shows once again how badly Wall Street and the big banks either mis-judged or lied about the size of their potential losses on mortgage bonds. Bank of America, for example, told its own investors at the end of last year that it had $1.4 billion in unresolved repayment claims from private investors. It appears Bank of America is about to pay nearly 6 times that amount. And this suit started back in October, so it is unclear why Bank of Americas estimate would have been so low.
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