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Bank of America to pay $8.5 billion to settle bad mortgage-backed securities claims

Bank of America (BOA) [corporate website] announced Wednesday that it has agreed to pay $8.5 billion [press release] to settle claims that it sold bad securities contributing to the housing market collapse. The securities, called first-lien residential mortgage-backed securitization, were issued by the BOA unit Countrywide Financial Corporation, which it purchased [AP report] for $4 billion in 2008. The settlement is only a small portion of the original principal balance of $424 billion covering 530 trusts with The Bank of New York Mellon as trustee. The settlement also includes an additional $5.5 billion in mortgage-related charges and BOA said it will also end up paying $2.6 billion in goodwill expenses. Shares of BOA jumped Wednesday morning before the market opened as investors were more confident that BOA's looming liability was being settled. Still, a court must approve the settlement.

BOA has recently been the target of several lawsuits over its business practices. BOA was dismissed in April from a lawsuit filed against Countrywide Financial [JURIST reports] last January, The plaintiffs argued that they had invested hundreds of millions of dollars between 2005 and 2007 believing the purchases of mortgage-backed securities to be "conservative, low-risk investments." The suit claims that Countrywide "recklessly" misrepresented the stability of the investments and failed to adhere to its stated underwriting and credit analysis procedures, leading the credit ratings of many of the securities to fall significantly. Last month, a federal court preliminarily approved [JURIST report] a class action settlement for $410 million between BOA and customers claiming they were illegally charged overdraft fees. BOA is among more than two dozen US, Canadian and European lenders named as defendants in the class action lawsuit, which consolidated claims across the country in 2009.

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