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    Banks still face mountain of lawsuits

    AGs, investors may pursue own actions

    Jonathan Alcorn/Reuters/File 2011
    Occupy movement activists around the country protested banks’ attempts to foreclose on homeowners’ properties.

    Financial analysts said the $25 billion settlement with the US government and 49 state attorneys general is a step forward for Bank of America Corp. and other large banks trying to resolveclaims stemming from the housing crisis, but they still face a mountain of other lawsuits.

    The accord, reached this week with the nation’s five largest mortgage lenders, resolves most of the government claims that banks mishandled foreclosures by illegally taking properties and filing fraudulent foreclosure documents. But the agreement does not cover everything.

    Martha Coakley of Massachusetts and other state attorneys general still reserved the right to pursue allegations that the banks illegally used a national housing database, the Mortgage Electronic Registration Systems Inc., to initiate foreclosures without holding the actual documents. Major banks also face tens of billions of dollars in claims from investors and companies that bought toxic mortgages from them and are pursuing legal actions of their own.


    Nancy Bush, an independent banking analyst, said banks will probably have to deal with lawsuits related to the housing bust for at least another five years.

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    “This does not by any means stop the avalanche [of litigation] that is still headed toward banks,’’ said Bush of NAB Research LLC in New Jersey. “It’s a large chunk of the litigation, but it’s not the majority.’’

    In addition to Bank of America, the settlement covers Ally Financial of Detroit, Wells Fargo of San Francisco, and Citigroup and JPMorgan Chase, both of New York.

    Bank of America, based in Charlotte, N.C., is particularly vulnerable to additional lawsuits because it bought Countrywide, once the nation’s largest mortgage company, during the financial crisis in 2008.

    The companies together sold more than $2 trillion in home loans to government-backed mortgage lenders and private investors from 2004 to 2008.


    Many of these mortgages soured after housing prices collapsed and borrowers stopped making payments, prompting many loan buyers to sue. As of December, Bank of America faced $14.3 billion in claims from government-backed mortgage companies, such as Fannie Mae and Freddie Mac, and other investors who bought the loans.

    Bank of America has tried to settle the bulk of investor claims with an $8.5 billion agreement with Bank of New York Mellon and a group of institutional investors. But other investors have challenged the proposal, making it uncertain when a judge will approve the deal.

    JPMorgan, Wells Fargo, and other banks also face similar suits. New York Attorney General Eric Schneiderman last week sued Bank of America, JPMorgan, and Wells Fargo last week for fraudulently using MERS to foreclose on homes.

    The lawsuits are draining bank profits and dragging down banking sector stocks. Bank of America was the worst performer in the Dow Jones industrial average last year, largely due to its housing woes.

    “Residual litigation issues will likely be a drag on earnings for years,’’ said Anthony J. Polini, a banking analyst with Raymond James.


    Still, Polini said yesterday’s settlement should have little impact on current bank earnings, because major banks have already set aside large pools of reserves to pay the cost of judgments and settlements. Bank of America, for example, has set aside nearly $16 billion to handle potential claims.

    Separately, Bank of America, Citibank, JPMorgan, and Wells Fargo agreed yesterday to pay $394 million in civil penalties to resolve complaints about their mortgage practices from the Comptroller of the Currency. And a mortgage unit of Bank of America settled allegations from the Federal Trade Commission that it overcharged homeowners by agreeing to refund another $8 million in fees on top of $28 million it has already reversed.

    Bank stocks were little changed yesterday.

    Bush said it is impossible to predict how much banks will ultimately have to spend to cover litigation costs.She also noted that the banks agreed to give attorneys general some oversight of national banks, which have historically reported to the comptroller’s office and other federal agencies.

    Specifically, the banks agreed to file regular reports on their efforts to comply with the accord with an outside monitor reporting to the attorneys general. The banks also agreed pay “heavy penalties’’ if they miss any deadlines. “It’s very odd to put it mildly,’’ Bush said. “I think there are some massive unintended consequences that will come from this.’’

    Todd Wallack can be reached at Follow him on Twitter @twallack.