The $1.6 billion settlement by Bank of America involving highly-questionable home loans could wind up costing the bank a great deal more down the road. The settlement with Assured Guaranty Ltd resolved claims Bank of America was responsible for mortgage bonds full of loans by Bank of America’s Countrywide Financial unit that did not meet lending standards. Assured Guaranty insured those bonds and when the loans went bad, investors suffered losses and the insurer had to pay out.
This huge settlement is a pretty good indication that there is a real issue. Several analysts have warned the bonds contain billions of dollars of improperly-written loans. Investors and bond insurers should have good claims and can force the Wall Street banks that created the bonds to cover their losses. It’s been estimated that Wall Street could be facing lawsuits with damages exceeding more than $100 billion. Bank of America’s potential exposure alone has been estimated to be as high as $30 billion.
Source: Insurance Journal
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