WASHINGTON/CHARLOTTE Dec 14 U.S. securities
regulators have made inquiries into the mortgage repurchase
practices at Bank of America Corp's Countrywide unit,
according to a transcript filed in a lawsuit against the bank by
insurer MBIA Inc.
The details of the inquiries, which had not been previously
disclosed, were included in documents filed this week.
It is unclear if the SEC continues to investigate the
matter, but the documents reveal the agency's interest dating
back to at least 2010 in an issue that has already saddled the
second-largest U.S. bank with billions of dollars of losses in
the wake of the financial crisis.
According to the documents, the U.S. Securities and Exchange
Commission requested a meeting with the bank to discuss its
representations and warranties process, according to the
When selling the mortgages, banks made promises or
"representations and warranties" about the loans. Investors can
ask banks to buy back soured mortgages if these promises were
evidently broken, for reasons such as poor underwriting,
insufficient verification of income or other documentation
The SEC also asked about reserves for mortgage repurchase
requests, a bank employee testified.
Since buying Countrywide in 2008, Bank of America has been
forced to take billions of dollars of losses on soured mortgages
that were sold to investors such as Fannie Mae and Freddie Mac
during the housing boom. At the end of the third quarter, it had
set aside reserves of $16.3 billion in reserves for future
While the SEC has taken action against Bank of America over
its merger with Merrill Lynch, it has not sued the bank over
conduct at Countrywide. In 2010, the SEC imposed a record $22.5
million penalty on Countrywide chief executive Angelo Mozilo
over disclosures made as the subprime mortgage crisis emerged.
The SEC's interest in repurchases was disclosed as part of
heated litigation between MBIA and Bank of America over
mortgage-related claims. Bank of America on Thursday filed a
lawsuit against MBIA related to the bank's efforts to buy the
An SEC spokesman did not respond to a request for comment. A
Bank of America spokesman declined to comment.
In its annual report filing in February, the bank said it
had received "a number of subpoenas and other requests for
information" from regulators about mortgage-backed securities
and other mortgage-related matters.
In its most recent quarterly filing, it also included a
recurring disclosure that "in the ordinary course of business"
the bank is "subject to regulatory examinations, information
gathering requests, inquiries, investigations, threatened legal
actions and proceedings."
The transcripts filed this week include depositions MBIA
lawyers conducted with Bank of America employees in August. The
interviews, with Cynthia Simantel and Michael Schloessmann, shed
new light on what the SEC may be examining.
Simantel, who is an executive in Bank of America's investor
audit department, which handles repurchase claims, said she gave
testimony to the SEC "a few years ago", and discussed with the
SEC a grid used to rate loans that came in to the group,
according to the transcripts.
Schloessmann, who managed the representations and warranties
process, which governs how repurchases are made, said
Countrywide provided the SEC with claims-related data the agency
had requested in early 2010.
Countrywide also put together a document about the top five
reasons that they have approved repurchases related to so-called
monoline insurers, which was provided to the SEC, according to
emails discussed by Schloessmann.
The details suggest the SEC could be examining whether the
bank was properly reserving for repurchases, or whether it
properly disclosed its repurchase requests.