Bank of America Corp. says it will pay $8.5 billion to settle with institutional investors who bought Countrywide mortgage-backed securities that went sour. In addition, the bank will set aside another $5.5 billion for potential liability to other business entities over the mortgage mess. The total potental set aside is $14 billion. This mega-settlement may be the largest single deal stemming from the subprime mortgage meltdown.
The deal settles repurchase claims from securities agreements with 530 trusts that had an original principal balance of $424 billion, the banks says. Of the total, the unpaid balance is roughly $221 billion.
The bank’s June 29 statement says 22 institutional investors have agreed to support the settlement, including major U.S. investors such as BlackRock Financial Management, Goldman Sachs Asset Management, Metropolitan Life Insurance Co. and ING Investment Mgmt.
Investors in the securitized mortgages (bundles of mortgages sold in pieces as secure investments) had demanded that the bank repurchase the mortgages. Generally, trust agreements contained terms that require repurchase in the event of breaches of contract terms for various reasons, including failure to provide appropriate appraisals, to verify owner-occupancy status or failure to make sure owners had sufficient income to cover the debts.
The deal must still gain court approval from the New York state court.