Mortgages are back in the news again


There were several stories Monday featuring Bank of America and the continued legal battles about the role the firm played in the mortgage meltdown.

On the positive side, the bank entered into a settlement agreement with MBIA over mortgage securities, eliminating a large legal risk for both firms.

Here are the details from the Wall Street Journal:

Bank of America Corp. and MBIA Inc. have agreed to a $1.7 billion settlement of a long-running dispute over who will pick up the tab for faulty mortgage securities issued during the U.S. housing boom, eliminating major legal questions for both companies.

The pact, which comes as MBIA faced a rise in mortgage-related claims, will keep the Armonk, N.Y., company’s insurance unit out of the hands of the New York state financial regulator, said people familiar with the deal.

Bank of America will pay MBIA $1.6 billion in cash, along with some other compensation, and provide MBIA with a credit line of $500 million. BofA will also take a stake in MBIA’s holding company of roughly 5%.

The settlement follows talks that have been on-again/off-again for more than six months, said people familiar with the matter. The two sides worked through the weekend, as did New York Department of Financial Services Superintendent Benjamin Lawsky, to bring about the deal.

It is one of the last overhangs for MBIA, which was sued by more than a dozen banks over its split during the financial crisis into one healthier bond insurer that focuses on guaranteeing municipal-bond payments and another that insured complex financial instruments and mortgage securities that soured during the crisis.

But just as one legal issue is being solved, another is cropping up. New York Attorney General Eric Schneiderman plans to sue BofA and Wells Fargo for violations of the mortgage settlement, according to the New York Times:

New York’s top prosecutor plans to sue Bank of America and Wells Fargo over claims that they violated terms of a $26 billion mortgage settlement, his office said on Monday.

Eric T. Schneiderman, New York’s attorney general, paved the way for a lawsuit against both banks over what he said was “repeatedly violating” the terms of the National Mortgage Settlement, a sweeping pact brokered last year between five of the nation’s biggest banks and 49 state attorneys general over foreclosure abuses.

The move by Mr. Schneiderman is the first time that an attorney general has readied a lawsuit against one of the five participating banks for running afoul of the settlement. More attorneys general could follow Mr. Schneiderman’s lead.

Under the terms of the settlement, which was aimed at halting the housing market’s downward slide and providing relief to languishing homeowners, the banks had to improve their servicing standards. The guidelines outline more than 300 servicing standards that each bank must follow when working with struggling homeowners. Those terms include notifying borrowers within five days that the banks have received necessary documents to complete a loan modification.

Such servicing standards were heralded as much-needed relief for homeowners who were ensnared in a maddening bureaucratic maze when seeking foreclosure relief. Homeowners seeking help with their mortgage were often unable to get through to a bank representative. Other times, they were asked repeatedly for the same documents.

That’s not likely to be welcome news to BofA shareholders who are heading to Charlotte for the bank’s annual meeting this week, according to the Charlotte Observer. Many are looking to for a resolution to some of the current legal problems:

But, as Moynihan said, the bank can only put its focus on growth once its house is in order. The bank has put a lot of legal issues behind it over the past year, a fact the CEO repeatedly stresses.

$2.4 billion settlement in September put to rest a long-running shareholder lawsuit over the bank’s acquisition of Merrill Lynch. A few months later, a $10 billion deal with Fannie Mae ended the bank’s exposure to loans sold to the government-sponsored mortgage giant.

Just a few weeks ago, the bank disclosed a $500 million agreement that would wipe out liability on billions in mortgage-backed securities.

But investors are still caught up on the exposure that’s left. Most notably, Bank of America is still awaiting court approval of an $8.5 billion settlement with Bank of New York Mellon over private-label mortgage-backed securities. It’s also still battling bond insurer MBIA over claims the bank misrepresented mortgage loans backed by the company.

In addition, the New York attorney general’s office is set to announce lawsuits against Bank of America and Wells Fargo, claiming documented violations of the sweeping mortgage settlement between states and five big banks last year, according to an announcement from the office.

While the stock might be up, it seems that Bank of America still has some work to do cleaning up their operations. Maybe eventually all the mortgage lawsuits will be settled, but for now it looks like once one is over the next one begins. And just when business journalists thought they could shift attention to writing about a housing recovery or more capital requirements, it seems they’ll be writing about mortgages once again.