We’ve been watching the overwhelming number of lawsuits being filed against the nation’s biggest banks. Seems like for every one that’s settled, there’s another waiting in the wings. Bank of America isn’t immune to these legal quagmires. The same day it announced it had settled a long-running legal dispute over mortgage-backed securities, it was hit with another suit.
The $1.7 billion agreement settles a long standing battle and also pumps much needed cash into MBIA, which, as many know, was on the verge of falling apart within weeks. It seems as though the two are now partners.
Bank of America Settlement
Under the agreement announced hours ago, Bank of America says it will shell out $1.6 billion in cash to MBIA followed by another $500 million in the form of a loan. It also acquired warrants that, if exercised, would give the bank a 4.9 percent stake in the insurer. Finally, BofA was also ordered to surrender to MBIA close to $130 million in MBIA bonds. The bank said it would reduce its first quarter after tax profits, which had just been announced, by $1.1 billion. That equates to ten cents a share. But it will also improve its capital position. For its part, MBIA says that the settlement would have little impact on its profits, but said its first-quarter results, scheduled to be released on Thursday, would be delayed. It’s not sure how long that delay might be.
Any chance that MBIA would be split into two companies has now been quashed. The stock market seems to like the settlement; shares of MBIA rose $4.46 – which equates to 45 percent and was at to $14.29 by the time the final bell rang. For its part, Bank of America shares surged 64 cents, or 5 percent, to $12.88.
Countdown Was On
The insurer was within weeks of owing $3 billion to Merrill Lynch as a result of credit-default swaps issued by MBIA. It had failed to meet its earlier obligations and Benjamin Lawsky, the New York State financial services superintendent, made it clear that there would be no more loans issued to the company. He also hinted that MBIA Corporation might be put into receivership before it had to pay Merrill Lynch. He said discussions had been ongoing for more than a year, but it wasn’t until the past few weeks that talks finally translated into solutions,
There was a way to get to yes because everyone had claims on everyone else,
he said. Continuing, he said
resolves significant exposure and expensive litigation for Bank of America, while also giving MBIA a path forward.
Two years ago, the New York State Insurance Department, which later was merged with the Department of Financial Services, approved a decision by MBIA to split into the two companies. A lawsuit followed as banks and hedge funds that owned securities insured by MBIA insisted that the split be reversed. Instead, a judge said that the insurance company had “wide latitude to approve the split with or without much investigation.” Bank of America said it would continue to appeal the decision.
New Mortgage Violations
Also on Monday, both Bank of America and Wells Fargo were named in a lawsuit alleging mortgage settlement violations. The state of New York says it’s filing the suit because both banks failed to comply with the National Mortgage Settlement in 2012. Federal officials, along with attorneys general from all but one state made a joint statement about a $25 billion settlement with five of the nation’s largest banks over robo-signing and other wrongful foreclosure practices. The banks promised to reform their business practices as part of the settlement as well.
According to New York Attorney General Eric Schneiderman, neither Wells Fargo nor Bank of America have cleaned up their respective acts and both have “repeatedly violated this agreement, claiming to have documented 339 cases involving various homeowners.” This is the first federal or state legal action against any bank associated with the settlement.
The five mortgage services that signed the National Mortgage Settlement are legally required to take specific, rigorous and enforceable steps to protect homeowners,
Schneiderman said in a statement. He continued by saying both have “flagrantly violated” their obligations and as a result, hundreds of homeowners in New York are now at a higher risk of foreclosure.
Prevented 10,000 Foreclosures
Bank of America disagrees and says its actions have prevented more than 10,000 foreclosures through the National Mortgage Settlement. Those efforts, according to the bank, totals more than $1 billion. It did say it was taking the accusations seriously, though, and that it will do its best to resolve the problems. The Bank of America monies will be used to repay loans made to MBIA Corporation. Bank of America also retains a five year window to purchase more than 9 million shares of MBIA for $9.59 per share. If it does opt to do so, it injects another $95 million into the insurer.
Meanwhile, Wells Fargo says it will reserve comment until it’s had time to review the suit.
Non Cash Relief
The National Mortgage Settlement involved the nation’s five biggest banks, which, along with BofA and Wells Fargo, includes JPMorgan Chase, Citi and Ally. The $5 billion was to be paid to both states and the federal government while the rest of the relief would be provided as “non-cash” to homeowners. Further, the banks also were ordered to implement a “package of standards” when dealing with homeowners seeking out loan modifications. Schneiderman contends Bank of America and Wells Fargo have failed to see that through, as well. He says both have violated the order by ignoring applications within a very specific timeframe. They’ve been accused of failing to notify borrowers of the changes in their mortgages, including failing to provide them 30 days to make corrections to their applications.
Violations of the timeline standards increase the likelihood that distressed homeowners will lose their homes,
the statement from Schneiderman said.
Additional fees, penalties and interest accrue during periods of delay, making a modification more difficult and pushing homeowners closer to the brink of foreclosure.