No sooner does Bank of America announce earnings than it gets hit with a significant threat of legal action from mortgage bond holders – including the New York Fed. From Bloomberg:
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP. …
“We continue to review and assess the letter, and have a number of question about its content, including whether these investors have standing to bring these claims,” Bank of America Chief Financial Officer Charles H. Noski said today on a conference call with analysts. “We continue to believe the servicer is in compliance with the servicing obligations.”
The letter covered 115 separate mortgage securitizations, with $105 billion in original balances, from “eight investors purportedly owning interests in these transactions,” Noski said.
This comes on top of a report last week, also from Bloomberg, that the Federal Home Loan Bank of Chicago had sued Bank of America for not having disclosed its relaxed mortgage underwriting standards to investors in its mortgage-backed securities.
Spokesmen for BlackRock and Pimco declined to comment. Spokesmen for the NY Fed and Bank of America did not immediately answer requests for comment.
The Bloomberg story broke at 1:49pm in New York. Here’s a chart of BofA and the other large banks, via Google Finance (click to enlarge):
And according to Markit, CDS on banks widened immediately after the story broke, and then tightened a bit:
BoA spreads were at 185…wide as 200…and are now at 195.
Citi spreads were 159….wide as 167 and now at 161
Wells Fargo spreads were 120….128…122
Developing.
UPDATE: Dealbook has posted the letter from bondholders to BofA.
Related link:
Bank of America posts Q3 adjusted net profit of $3.1bn – FT Alphaville