Bank of America announced on January 7 that it would pay $3.6 billion to Federal National Mortgage Association (Fannie Mae) and repurchase for $6.75 billion certain residential mortgage loans sold to Fannie Mae. The agreement, which covers loans with an aggregate original principal balance of approximately $1.4 trillion and an aggregate outstanding principal balance of approximately $300 billion, resolves all outstanding and future representation and warranty claims associated with substantially all residential mortgage loans sold directly to Fannie Mae by Bank of America or Countrywide from January 1, 2000 through December 31, 2008. Press Release.
Bank of America
Federal Court Narrows FDIC Lawsuit Against Countrywide
On January 3, Judge Mariana R. Pfaelzer of the Central District of California ruled on motions to dismiss filed by defendants Countrywide, Bank of America, and UBS in an action brought against them by the Federal Deposit Insurance Corp. (FDIC) concerning $108.4 million in residential mortgage-backed securities. The Court’s order concerned the FDIC’s claims under Section 11-51-501(1)(b) of the Colorado Securities Act. The Court granted the motions with respect to alleged misstatements pertaining to owner-occupancy data and additional liens because the Offering Documents indicated that this data was self-reported by borrowers. It also granted the motion with respect to successor liability claims asserted against Bank of America. The Court denied the motions with respect to alleged misstatements pertaining to loan underwriting standards and appraisals. The Court also denied the motions with respect to defendants’ argument that the FDIC did not adequately allege reliance and causation, holding that those are not elements of the FDIC’s claim and thus not required to be pled. Opinion.
New York Federal Court Denies BofA’s Motion for Reconsideration in FHFA Case
On December 18, 2012, Judge Denise Cote of the United States District Court for the Southern District of New York denied Bank of America’s motion for reconsideration of the denial of its motion to dismiss claims brought by FHFA. Bank of America argued that FHFA could not bring claims under Sections 11 and 12(a)(2) with respect to ten certificates issued before a final prospectus was filed. The court held that under Section 11, FHFA may assert claims based on commitments to purchase that were made before the filing of a final prospectus. Judge Cote further held that Bank of America’s arguments under Section 12(a)(2) and Rule 159 involve factual issues that cannot be resolved at the motion to dismiss stage. Decision.
Pension Fund Class Action to Proceed Against Bank of America and U.S. Bancorp
On December 6, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York denied Bank of America and U.S. Bancorp’s motions to dismiss a suit by the Policemen’s Annuity and Benefit Fund of the City of Chicago. Plaintiff brought claims against Bank of America and U.S. Bancorp for breach of contract, breach of the implied covenant of good faith and fair dealing, and the Trust Indenture of 1939, alleging that defendants failed to protect investors in their role as trustees for RMBS issued by Washington Mutual. Plaintiff alleges that Bank of America and Bancorp failed to take certain actions required by the pooling and servicing agreements, including taking possession of loan files, reviewing those files to ensure they were complete, or requiring Washington Mutual to repurchase or fix defective loans. The court limited plaintiff’s ability to pursue claims only to trusts in which it had purchased certificates or on behalf of purchasers of certificates whose certificates are backed by the loan group that back plaintiff’s certificates or whose certificates are cross-collateralized by loan groups that back plaintiff’s certificates. Decision.
Court Dismisses In Part RMBS Suit Against Countrywide, Dismissed In Entirety Against Bank of America
On December 6, Judge Mariana Pfaelzer of the United States District Court for the Central District of California dismissed in part claims brought by several insurance companies, including Minnesota Life Insurance Company, in connection with the purchase of $114 million in RMBS issued by Countrywide. Although the court denied Countrywide’s motion to dismiss the fraud claim against it, the court dismissed plaintiffs’ negligent misrepresentation claim and claims under various Minnesota consumer protection statutes. The court granted Bank of America’s motion to dismiss in its entirety, holding that plaintiffs had not sufficiently alleged successor liability against Bank of America. Decision.
CIFG Sues Bank of America Over RMBS Insurance Policies
On November 20, CIFG sued Bank of America in Supreme Court for the State of New York concerning five financial guaranty policies issued in connection with two structured transactions backed by 22 RMBS. CIFG alleges that Bank of America knowingly repackaged securities backed by poor quality mortgage loans into two new securitizations. CIFG alleges that it was induced to insure the securitizations by misrepresentations about the quality of the underlying mortgage loans. CIFG alleges fraudulent inducement, misrepresentation in violation of New York Insurance law, negligent misrepresentation, and breach of contract. CIFG seeks payment of past, current, and future claims or rescissionary damages, reimbursement for its losses, and punitive damages. Complaint.
Phoenix Light SF and Other Investors Sue Bank of America Over $261 Million in RMBS
On November 13, Phoenix Light SF Limited and other investors filed a summons with notice in the Supreme Court for the State of New York against Bank of America and various Countrywide affiliates. Plaintiffs assert claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud arising out of their alleged purchase of $261 million of RMBS. Plaintiffs allege misrepresentations in the offering documents regarding underwriting guidelines, loan characteristics, the securities’ credit ratings, and the validity of the trusts and the assignments of loans to the trusts. The case seeks over $122 million in damages. Summons with Notice.
Royal Park Investments Sues Bank of America Over $1.6 Billion in RMBS
On October 26, Royal Park Investments filed a summons with notice in New York state court against various Bank of America and Countrywide entities arising out of Royal Park’s alleged purchase of $1.568 billion in RMBS. Royal Park asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud. It alleges that defendants made material misrepresentations and omissions regarding the underwriting standards used in connection with the underlying mortgage loans, the statistical characteristics of those loans, including loan-to-value and combined-loan-to-value ratios and the percentage of owner-occupied properties, the validity of the assignments of the loans to the trusts, and the entitlement of the trusts to receive interest and principal payments on the loans. Royal Park claims to have suffered, and seeks to recover, at least $713.5 million in damages. Summons.
U.S. Sues Bank of America for Alleged Mortgage Fraud Against GSEs
On October 24, the U.S. Attorney for the Southern District of New York filed suit against Bank of America and Countrywide seeking damages for over $1 billion in alleged losses suffered by Fannie Mae and Freddie Mac. The complaint alleges that Bank of America and Countrywide violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the False Claims Act by selling defective loans originated through a fraudulent origination program called the “High-Speed Swim Lane” (HSSL) or “the Hustle” that was implemented by Countrywide from 2007 to 2009. The Government alleges that the program intentionally was designed to process loans quickly, ignoring or eliminating quality controls, including by replacing underwriters with “loan processors” who are alleged to have been “unqualified and inexperienced clerks.” The suit further alleges that Countrywide, and later Bank of America, concealed the defects from Fannie Mae and Freddie Mac as they continued to sell these defective loans through 2009. The Government seeks civil penalties under FIRREA as well as treble damages under the False Claims Act. In a press release issued the day of the filing, the U.S. Attorney described the lawsuit as a “clear message that reckless lending practices [would] not be tolerated.”
FDIC Files Five Lawsuits Against Bank Entities Over RMBS
On August 10, the FDIC in its capacity as receiver for Colonial Bank filed five lawsuits – three in Alabama state court, one in New York federal court, and one in California federal court – seeking $741 million in damages from a number of investment banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup, Inc., and others, for making allegedly false and misleading statements that induced Colonial Bank into buying mortgage-backed securities. The FDIC alleges that the banks made numerous false and misleading statements in the offering documents for the RMBS regarding the credit quality of the mortgage loans underlying the securities. The three Alabama cases each assert two causes of action under the Alabama Securities Act, as well as causes of action under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Securities Act). The New York and California cases each assert causes of action under Sections 11 and 15 of the Securities Act.
Complaint: Alabama – FDIC v Bank of America, et al.
Complaint: Alabama – FDIC v Citigroup Mortgage Loan Trust, et al.
Complaint: Alabama – FDIC v Countrywide Securities Corp, et al.
Complaint: New York – FDIC v Chase Mortgage Finance Corp., et al.
Complaint: California – FDIC v Countrywide Securities Corp, et al.