Massachusetts securities regulator William Galvin is subpoenaing Bank of America Corp. over two collateralized loan obligations that led to investors to lose $150 million. Galvin is trying to determine whether the financial firm knew it was overvaluing the portfolios’ assets so it could remove the loans from its books.
The state is looking to obtain records and documents from Banc of America Securities LLC related to two CLOs-Bryn Mawr CLO II Ltd. and LCM VII Ltd-that were sold in 2007. (Merrill Lynch and Bank of America Securities joined forces in 2008 when they were merged in an acquisition).
It was in 2006 that Bank of America had about $400 million of commercial loans from small banks. The following year, loans were put together as securities packages that were bought by investors.
Galvin has been taking a hard look at the way banks structured and sold debt products-especially mortgage-backed securities-leading up to the 2008 economic collapse. Galvin says his office is also interested in taking a closer look at other entities.
Massachusetts’ subpoena on Friday comes a day after Bank of America, Citigroup Inc., Wells Fargo & Co., JP Morgan Chase & Co., and Ally Financial Inc. agreed to settle for $25 billion allegations accusing them of engaging in abusive mortgage practices. The agreement was reached with federal agencies and 49 states (not Oklahoma) and is considered the largest federal-state settlement ever. All five banks will also pay the Federal Reserve $766.5 million in penalties.
The deal resolves allegations that the banks robo-signed thousands of foreclosure documents without properly reviewing the paperwork, engaged in deceptive practices when offering loan modifications, did not offer other options prior to closing on borrowers who had mortgages that were federally insured, and submitted improper documents in bankruptcy court.
Also as part of this securities settlement, Bank of America will pay $1 billion to settle a separate probe into allegations that it and its Countrywide Financial unit engaged in wrongful and fraudulent conduct. The $25B settlement is designed to provide mortgage relief and give $2,000 to about 750,000 borrowers whose homes ended up foreclosing after home values dropped 33% from what they were worth in 2006.
Per other terms of the settlement, the bank is to provide $17 billion in loan modification and principal reduction to delinquent borrowers whose homes are at risk of foreclosure. $3 billion is included for borrowers that are up-to-date on mortgage payments but cannot refinance because they owe more than what their home is worth. The banks have also agreed to new servicing standards.
Massachusetts Subpoenas Bank Of America Over CLOs, Fox Business, February 10, 2012
U.S. banks agree to $25 billion in homeowner help, Reuters, February 9, 2012
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FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011
Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices, Institutional Investor Securities Blog, December 21, 2011 Continue reading