Bank of America Corp. will pay $8.5 billion to settle claims of investors who lost money on mortgage-backed securities. This is a landmark event that will likely influence other major banks to settle their mortgage claims. Thus far, the amount to be paid is the largest single settlement by big banks related to the financial crisis that helped spark the Great Recession. According to Bank of America, the charges include an additional $5.5 billion to cover expected payments to other mortgage bond investors.
The $8.5 billion settlement covers claims from 22 institutional investors, including BlackRock Financial Management, Pacific Investment Management Co and Western Asset Management. According to the bank, the settlement is linked to mortgages made by Countrywide Financial Corp, once the nation’s largest mortgage lender, which it bought in 2008. Some observers believe the settlement, which is subject to court approval, should cause other big banks, including JPMorgan Chase & Co and Wells Fargo & Co., to consider settling similar lawsuits with mortgage bond investors. A fairness hearing has been set for November 2011. I understand that not all persons and groups are satisfied with the settlement. It will be interesting to see what opposition develops and where it comes from.
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