BofA's Countrywide sued, accused of massive fraud

NEW YORK Wed Jan 26, 2011 7:31am EST

A bicyclist rides past a Bank of America in Tucson, Arizona January 21, 2011. Bank of America Corp, the largest U.S. bank, reported weaker-than-expected revenue and a second straight quarterly loss after its limping mortgage business triggered writedowns and legal settlements. REUTERS/Joshua Lott

A bicyclist rides past a Bank of America in Tucson, Arizona January 21, 2011. Bank of America Corp, the largest U.S. bank, reported weaker-than-expected revenue and a second straight quarterly loss after its limping mortgage business triggered writedowns and legal settlements.

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Bank of America Corp's Countrywide mortgage unit has been sued by investors claiming they were victimized in a "massive fraud" when they bought mortgage-backed securities.

The lawsuit was filed on Monday in a New York state court by 12 plaintiffs including the TIAA-CREF fund family, New York Life Insurance Co and Dexia Holdings Inc.

According to the complaint, the investors bought hundreds of millions of dollars of Countrywide securities from 2005 to 2007 that they thought were "conservative, low-risk investments."

The investors said Countrywide misrepresented the securities' safety in offering documents and elsewhere, and compromised their investments by ignoring its underwriting guidelines.

As a result, the complaint said, most of the securities now carry "junk" credit ratings rather than the "triple-A" ratings they once had, resulting in "significant losses."

The plaintiffs want compensatory and punitive damages.

Bank of America spokeswoman Shirley Norton said in a statement that the lender would review the lawsuit, "but on first glance these sound like large, sophisticated investors who now want to blame someone for the fact that the declining economy caused their investment to lose value."

Other defendants include several former Countrywide officials, including longtime Chief Executive Angelo Mozilo.

David Siegel, a lawyer for Mozilo, said the lawsuit has no basis in law or fact.

"We expect to prevail against these plaintiffs as we have against other sophisticated MBS investors," Siegel said.

Mozilo agreed in October to a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit accusing him of misleading investors.

Countrywide had been the largest U.S. mortgage lender before it was bought in 2008 by Bank of America.

In the fourth quarter of 2010, Bank of America took a $2 billion writedown on Countrywide. It also set aside $4.1 billion for legal costs tied to home loans it is buying or is likely to buy back from investors.

The insurer Allstate Corp sued Bank of America last month over the alleged misrepresentation of risks on more than $700 million of mortgage debt it bought from Countrywide.

The case is Dexia Holdings Inc et al v. Countrywide Financial Corp et al, New York State Supreme Court, New York County, No. 650185/2011.

(Reporting by Jonathan Stempel in New York; additional reporting by Dan Levine in San Francisco)

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Comments (2)
bigboondi wrote:
hmmm let us see now little people investors got em for every cent and they have no way out.
Big money investors that make bad deals? oh please we are wrongly done by, stop us from losing money.
Point of interest will the government bail out their mates and expect a backlash from the peoples ??
or be quietly conservative and do it on the sly ?

Jan 26, 2011 11:14am EST  --  Report as abuse
ImIn2Jazz wrote:
Looking back on it now, it appears securitizing mortgages and offering them as investment vehicles, with little or no risk to the originators of the loan played a part in the mess we are in now. Fannie and Freddie is a government backed clearing house that enables the banks to keep lending….look at the present insolvency of Freddie/Fannie…and how about AIG and the credit default scandal, that left most of the banks involved whole but put the burden of keeping AIG afloat on the taxpayers…criminal. Investors in Countrywide securities, join the club, when the housing boom was on, everybody was making money and looking the other way, now you want to sue for your own lack of foresight! It is going to be a long slog back both for the housing industry and indirectly, our economy. It’s a shame, to big to fail has caused such hardship for the general public.

Jan 27, 2011 9:05am EST  --  Report as abuse
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