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The 2008 acquisition of Countrywide Financial has cost Bank of America (NYSE:BAC) more than $40 billion in settlements over the subprime lender’s allegedly fraudulent mortgages, and litigation has continued to trouble the bank to this day. But according to the Chicago Tribune, another of its legal dispute may be close to resolution as the four-year-long dispute between the bank and the insurer MBIA (NYSE:MBI) nears a settlement.
What are MBIA’s Complaints?
“MBIA claims that Bank of America owes it billions of dollars over soured mortgages that it wants the bank to buy back,” reported the Tribune on Thursday. But Bank of America has complaints as well. The nation’s second-largest bank has said that “the insurer owes it billions over certain credit default swap transactions.”
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The litigation began in 2008, mere months after Bank of America purchased Countrywide for $4.1 billion. MBIA, which has placed its mortgage losses at $3 billion, claimed that Countrywide had securitized loans that were riskier than the lender had guaranteed. Even though co-founder Angelo Mozilo has argued publicly that Countrywide’s loan practices were not responsible for the housing crisis, emails that were uncovered by Congressional investigators during the Securities and Exchange Commission’s 2009 lawsuit show otherwise. According to Bloomberg, Mozilo was concerned as early as 2004 about the “decline in quality of mortgages the lender was originating.”
After both firms argued their respective cases in New York State court on this month, analysts at the research firm CreditSights told the Tribune that it expects a comprehensive settlement, which will cover both Bank of America’s claims and those of MBIA, to be made shortly. The hearing is scheduled to resume on Thursday.
CHEAT SHEET Analysis: Is this a Positive Catalyst for Bank of America’s Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. In this case, litigation has prevented Bank of America from leaving behind its financial crisis-era problems, and as a result the bank continues to be regarded as one of the “most troubled” of the nation’s large banks by The New York Times.
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