Bank of America settles over mortgage securities

A pedestrian walks by a Bank of America branch office on January 21, 2011 in San Francisco, Calif.

Bob Moon: A big-name bank and a big-figure financial settlement today. Bank of America says it'll pay $8.5 billion to settle claims from major investors over mortgage-backed securities gone bad. They were sold by Countrywide Financial, which B-of-A bought at the beginning of the financial crisis. Investors like MetLife, Blackrock and the Federal Reserve Bank of New York claim they were sold shaky mortgages with lousy collateral. Now, B-of-A is trying to get past all that. Question is, what does it do for the rest of us?

Here's Marketplace's Mitchell Hartman.


Mitchell Hartman: Bank analysts see the settlement as evidence B-of-A is moving past all its legal troubles. And that's good news for anyone who owns B-of-A stock. Paying out $8.5 billion will eat up several years of recent profits, but it's just pennies on the dollar of the disputed bonds' original value.

Chris Whalen at Institutional Risk Analytics, though, predicts years of lawsuits to come.

Chris Whalen: I don't see it as the high-water mark at all. I think it's an indication of how much more expense all of these big banks are going to face as a result of litigation.

Settlements like this one, though, might help distressed homeowners, says Guy Cecala of Inside Mortgage Finance. That's because investors charge banks are sloppy with their paperwork -- both in writing mortgages and also foreclosing on them.

Guy Cecala: Potentially, this lays the groundwork for other people, perhaps even consumers, going after Bank of America, Wells Fargo or any of the major servicers for servicing problems.

And if investors start settling with banks and clearing their books of bad loans, they might start buying new mortgage-backed securities, says Cecala, which would get more money flowing into the pipeline to lend to potential homebuyers.

Cecala: And that would help borrowers who traditionally have gone after non-conforming mortgages, whether they be jumbo mortgages, or to people with smaller down payments or less-than-perfect credit.

Of course, those are some of the people whose shaky mortgages sent the economy spiraling into chaos in the first place.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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