Bank of America has received final approval on a $500 million dollar settlement with investors claiming they were solid junk mortgage-backed securities in the run up to the financial crisis. The settlement was reached by the unit within the bank responsible for overseeing the investments taken on with its purchase of Countrywide mortgage lenders.
“An immediate cash payout that avoids the risks and expenses associated with bankruptcy, protracted litigation, appellate review, and several legal challenges militates in favor of final approval,” said U.S. District Judge Mariana Pfaelzer in her ruling on Dec. 9. She tentatively approved the deal earlier, reports Bloomberg.
The deal is good news for investors. Pfaelzer’s previous rulings had removed the possibility for the class to reclaim investments from Countrywide, and Bank of America had indicated recently that it may still put the Countrywide division in to bankruptcy.
The deal settles concerns from investors that Countrywide gave misleading documents and testimonies to investors about the quality of mortgage-backed securities prior to being purchased by BoA. Many of the securities that were sold during this time were evaluated much higher than they should have been, and were eventually cut to junk status during the housing collapse causing considerable losses for investors.
Another deal pending for $8.5 billion dollars in the State of New York would settle additional issues that Countrywide had with securities there. In that case, Countrywide is charged with neglecting its contractual obligations to replace delinquent mortgages that were grouped together for securities. The $500 million settlement is not part of that deal.
BoA is also expected to pay considerable fines to the federal government over these defective loans, and has recently been pointed to as a “what-not-to-do” example of compliance when Deputy Attorney General James Cole spoke out against it and other banks at a conference at Washington D.C. on Nov. 19
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