BofA reaches $335 million settlement over mortgages
Bank of America Corp has reached a $335 million settlement of a federal lawsuit accusing it of misleading shareholders about its exposure to risky mortgage securities and its dependence on an electronic mortgage registry known as MERS.
The second-largest U.S. bank disclosed the accord in its quarterly report filed on Friday with the U.S. Securities and Exchange Commission. It said it set aside enough reserves for the settlement as of June 30, and that final documentation and court approval are still needed.
Shareholders led by the Pennsylvania Public School Employees’ Retirement System claimed they had been misled into buying Bank of America stock in 2009 and 2010, including stock sold to repay $45 billion of federal bailout money.
They said the Charlotte, North Carolina-based lender knew it could not raise enough capital had it revealed it might have to buy back billions of dollars of securities backed by risky loans, including from the former Countrywide Financial Corp.
Shareholders also said the bank knew that record keeping in Merscorp Inc’s private Mortgage Electronic Registration Systems registry was so poor that it would not be able to legally foreclose on thousands of delinquent mortgages.
MERS was established in 1995 to circumvent the often cumbersome process of transferring ownership of mortgages and recording changes with county clerks.
Spokesmen for Bank of America did not immediately respond to requests for comment. The pension fund and its in-house counsel did not immediately respond to similar requests. An outside lawyer for the fund declined to comment.
The bank has spent more than $70 billion since the financial crisis to resolve legal and regulatory matters, including those tied to its purchases of Countrywide in July 2008 and Merrill Lynch & Co six months later.
The case is Pennsylvania Public School Employees’ Retirement System et al v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 11-00733.
Reporting by Jonathan Stempel