Bank of America may finally be able to begin burying the largest of its crisis-era skeletons, Countrywide Financial.
A New York appeals court on Thursday overturned Judge Barbara Kapnick's ruling from last year that delayed the bank's $8.5 billion agreement with investors, initially reached four years ago. Kapnick mostly approved the settlement last year, but full judicial approval was postponed by her raising additional legal questions.
This week's approval is positive for Bank of America, as the Countrywide case was one of the largest unresolved issues that have been costly and difficult for the bank to move past. Three other large legal overhangs include non-Countrywide claims against the bank regarding precrisis mortgage sales; a mortgage insurance-related suit filed by Ambac Assurance Corp in December; and potential civil payments to settle claims the bank may have manipulated the Libor benchmark rate.
Investors who claimed violations in representation and warranties in Countrywide's mortgage-backed securities sold leading up to the crisis could start receiving payments as early as this fall. Bank of America first set aside a reserve for the settlement, plus $100 million for costs, back in 2011. Countrywide originated or purchased $1.4 trillion in mortgages in the two years leading up to the crisis.
There is a chance that new appeals could be filed, but that is not currently expected to happen. A reargue motion was withdrawn as recently as Feb. 25. Two investors, AIG and Triaxx, withdrew objections last year. According to analysts at Barclays, a fund for the Policemen's Annuity and Benefit Fund of the City of Chicago et al, Sterling Federal Bank, and the Knights of Columbus were the last three remaining objectors in the case.
It has cost more than $63 billion in commitments from large banks including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo to put to bed their nightmares from shoddy mortgages, and many cases remain far from completed.
Suits made on behalf of investors by the law firm of Gibbs & Bruns have extracted promises so far of $16.99 billion, including Bank of America's settlement figure. The Federal Housing Finance Agency has extracted $12.87 billion from those six banks so far, and the government's multiagency RMBS Working Group has extracted another $33.85 billion, according to public tallies and company data.
Industrywide, and in the context of other trustee cases, the Countrywide case is the largest major settlement outstanding with investors. The only other large trust distributions paying out so far come from the settlement with ResCap (formerly the servicing unit of Ally Financial), which has paid investors about $2 billion since the final agreement. In full, investors claiming distributions from the Countrywide settlement will be paid out over 49 months, according to a June 2011 agreement timeline.
The largest unresolved cases with trustees include settlements for JPMorgan Chase and Citigroup. Exact terms to settle both are still being discussed. Trustees accepted JPMorgan's $4.5 billion agreement with investors in October, but a court would not approve it in December. The next hearing will take place March 20. Wells Fargo analysts believe funds from the JPMorgan settlement could begin to flow, at the earliest, sometime early next year. Citigroup trustees approved terms in December, but also haven't won court approval to move ahead. The next hearing in that case is scheduled for May 19.