$500M MBS Settlement Reached Between Countrywide and Investors

Class action securities plaintiffs, led by the Iowa Public Employees’ Retirement System, have settled their mortgage-backed securities lawsuit against Countrywide for $500 million. This is the largest federal class action MBS securities case in the US that has been resolved to date, even exceeding the $315 million settlement reached with Bank of America’s (BAC) Merrill Lynch (MER) last year.

Per the investors, Countryside, which was acquired by BofA, sold them billions of dollars in MBS certificates that were backed by defective loans. Toward the end of 2008, nearly all of the certificates were relegated to junk bond status.

The plaintiffs allege that offering documents for the mortgage-backed bonds failed to disclose that Countrywide was ignoring its own guidelines regarding home loan originating. In their consolidated class action securities case, investors sought over $351 billion of the Countrywide MBS that had been downgraded after the subprime collapse in 2007. (A district judge would go on to narrow the mortgage-backed securities lawsuit to $2.6 billion in bonds and Bank of America was dismissed as a defendant.)

According to Bank of America, this securities settlement resolves approximately 80% of the principal balance of RMBS that were issued by Countrywide and has not yet been paid. However, now there is news that American International Group can go ahead and file its RMBS lawsuit against Countywide. A judge said that the insurer could pursue claims accusing the latter of making false representations in offering documents that it had abided by underwriting guidelines. It was just earlier this week that Bank of America settled with bond insurance company MBIA Inc. over Countrywide for $1.6 billion.

BofA’s Countrywide Agrees to $500 Million MBS Settlement, Bloomberg, April 17, 2013

AIG may pursue fraud case versus BofA over Countrywide, Chicago Tribune, May 7, 2013

Merrill Lynch $315 Million Settlement Approved by U.S. Judge, Bloomberg, May 8, 2012

More Blog Posts:
Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgage-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012