By Derik Hilliard

Bank of America and its Countrywide unit will pay $8.5 billion to settle investor claims that the lenders sold poor-quality mortgage-backed securities that went sour when the housing market collapsed. Meanwhile, thousands of homeowners are still waiting for BoA to refinance their mortgages so that they don't lose their homes.

The deal, announced Wednesday, June 29th, comes after a group of investors demanded that the bank repurchase $47 billion in mortgages that its Countrywide unit sold to them in the form of bonds.
The group argued that Countrywide enriched itself at the expense of investors by continuing to service bad loans while running up service fees. Bank of America, which bought Countrywide in 2008 for $4 billion, has denied the claims.

If approved, the settlement, would resolve claims involving 530 mortgage bond trusts with an original principal balance of approximately $424 billion and a total current unpaid balance of about $221 billion. Bank of America is petitioning the New York State Supreme Court to approve the settlement.

This means that Bank of America will be able to eliminate one of its largest liabilities for around 2% of the original principal balance. If Bank of America offered the same terms to the thousands of customers stuck with faulty mortgages serviced by Bank of America and Countrywide, it would be possible for a family faced with the risk of defaulting on a $500,000 mortgage to settle the mortgage for $10,000 (2% of the principal balance.)

Bank of America enriched itself at the expense of investors, mortgage customers, and subsequently, taxpayers. It is unfair to permit Bank of America to place investor demands ahead of the needs of the people who trusted the bank with their homes and who later bailed it out from the consequences of a litany of poor investment decisions.

Wouldn’t it be great if Bank of America exhibited the same willingness to negotiate and settle with its mortgage customers that it does with its investors. To learn more about CU's mortgage work click here.