Bank of America is one of the leading banks in the US and has been working for decades now. But currently it is going through its worst crisis which is caused mainly due to its own mismanagement and mishandling of the mortgage loans. In order to meet the challenges, they are trying to do some settlement deals with major investors in order to get out of the reigning crisis.
Background of the Story
After being accused of mishandling billions of worth funds in mortgages last year, Bank of America started negotiating with major consortium of investors to settle these major charges. The group has asked for an explanation from Bank of America for mishandling these funds and given them a time frame of two months.
The Accusations
The charges contains the allegations of doing a poor job in the collection of mortgage payments and also poor service provided to borrowers who were having trouble making their payments. They further said that the Bank has not lived up to the underwriting criteria and did a poor job in providing quality mortgage services.
Questions were raised over the warranties provided by the bank on the loans which were offered to the investors in shape of bonds. Moreover, this mishandling of warranties and poor management has lead to the reigning financial crisis and put the bank in deep trouble.
Bank of America purchased Countrywide a while back to avoid bankruptcy during the recent crisis. But the investors wanted to have the same loans issued by Countrywide to recoup their losses. Bank of America initially resisted these allegations and tried to fight for it but soon realized that it was its own poor management and mishandling that lead to the crisis and they agreed to go into the settlement plan.
Settlement with two Giants
As a result of the Bank’s efforts to settle things down, they managed to fix a deal with two of the market giants, Freddie Mac and Fannie Mae. Both these giants themselves were on the verge of collapse last year and were bailed out by the government.
The Bank paid a total of 2.8 billion dollars to both these companies in order to cover the 128 billion worth of loans that it sold based on improper information. Freddie Mac received 1.28 billion dollars and Fannie Mae received 1.52 billion towards the settlement.
This deal after being publicized has been strongly criticized by the lawmakers as they have called it a “backdoor bailout” selling loans very cheaply. The critics say that if the bank could get out of it so easily by not having to pay enough for the bad debts, it will eventually be born by the American people.
Future Settlement Plans
Although the deals with Fannie Mae and Freddie Mac are still under scrutiny, Bank of America is still working on doing settlements with some other investors including Black Rock, New York Fed and PIMCO.
Reports say that Bank of America sold about 750 billion worth of loans to Black Rock and PIMCO just before the crisis started which could result in a setback of between 9 and 85 billion dollars. The Bank has to pay at least 47 billion dollars to clear its debts with these two companies which apparently seem to be less flexible than Freddie Mac and Fannie Mae.
Bank of America without any doubts is trying to settle its bad doings from past and trying to recover from the current crisis and this effort we can anticipate more settlement deals coming up in future as well.
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