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Bank of America announces $14-billion settlement of Countrywide mortgage claims

June 29, 2011 |  8:18 am

Rusty BofA sign

This post has been corrected. See the note at the bottom for details.

If Countrywide Financial co-founder Angelo Mozilo had sold former Bank of America boss Ken Lewis a kitchen sink, maybe they could have tossed that in there too.

Bank of America, which under Lewis bought Countrywide in 2008 for stock then worth $2.5 billion, said in a statement Wednesday that settling claims by holders of Countrywide mortgage securities would cost it an additional $14 billion.

That amount, to be recorded in Bank of America's second-quarter earnings, is just the latest in a long string of painful payouts stemming from the takeover of Countrywide, the Calabasas lender that once was the nation's largest writer of mortgages -- many of them of the subprime and liar loan varieties.

On top of an $8.5 billion payout to 22 institutional investors, which The Times reported on Wednesday, the $14 billion includes $5.5 billion to cover other demands by holders of mortgage securities.

[For the record, 9:55 a.m. June 29: An earlier version of the paragraph above incorrectly said $14 million; the correct figure is $14 billion. It also said the $14 billion included a $2.6-billion write-off.

Bank of America says it will report a second-quarter loss of $8.6 billion to $9.1 billion after recording $6.4 billion in additional mortgage-related charges, including a $2.6-billion write-off of its Countrywide investment.]

That follows a similar action in January, when B of A Chief Executive Brian Moynihan chopped $2 billion off the value of Countrywide on the bank's books.

All told, the settlement covers the Charlotte, N.C., bank's exposure to claims by holders of securities backed by 530 trusts stuffed with Countrywide mortgages with an original principal balance of $424 billion.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," Moynihan said in a statement. 

"We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

Bank of America said the settlement would resolve "nearly all" of its exposure to claims that Countrywide misrepresented the riskiness of first mortgages backing bonds it sold to investors such as Newport Beach bond giant Pimco.

The bondholders to be paid off also include the Federal Reserve Bank of New York. The Fed wound up with them when JPMorgan Chase & Co. agreed to take over failed Wall Street giant Bear Stearns -- but only if the government pocketed Bear Stearns' most toxic securities.

There's still a lot of Countrywide liability left for Moynihan to deal with. In addition to securitized second mortgages, Bank of America still faces demands including those of mortgage insurers who claim they should be repaid for their Countrywide losses.

And let's not forget the borrowers who wound up in foreclosure on their Countrywide loans. Bank of America is among five major mortgage servicers that are negotiating with state and federal officials over botched foreclosure proceedings. The total settlement figues being bandied about for months now start at $5 billion and range upward of $20 billion.


BofA's legal woes from Countrywide worse than expected

BofA gets 5 billion more reasons to regret acquiring Countrywide

Countrywide deal will pay off, BofA's top exec says

Ken Lewis' BofA exit kitty: $68.8 million

-- E. Scott Reckard

Photo: Rusty Bank of America sign in downtown L.A. Credit: E. Scott Reckard