BofA Tally on Mortgage Securities: $375 Billion (BAC)

Bank of America Corporation (NYSE: BAC) filed its quarterly report with the SEC today as its 10-Q.  Generally speaking these filings are often nebulous and contain many factoids that are often taken as both good and bad.  After looking through the litigation and legal proceedings sections, Bank of America has quantified the size of its mortgage-fraud related suits.  The company has not admitted any guilt and it did not quantify or project any expected outcome.  The figure is a shocking $375 billion.

The company disclosed in its “Mortgage-Backed Securities Litigation” the following data:

• The Corporation and affiliates, legacy Countrywide entities and affiliates, and legacy Merrill Lynch entities and affiliates have been named as defendants in a number of cases relating to various roles they played in MBS offerings. These cases are generally purported class action suits or actions by individual purchasers of securities. Although the allegations vary by lawsuit, these cases generally allege that the offering documents for more than $375 billion of securities issued by hundreds of securitization trusts contained material misrepresentations and omissions, including statements regarding the underwriting standards pursuant to which the underlying mortgage loans were issued, the ratings given to the tranches by rating agencies, and the appraisal standards that were used in violation of Section 11 and 12 of the Securities Act of 1933 and/or state securities laws. The cases generally allege unspecified compensatory damages and in some instances, seek rescission. The Corporation has previously disclosed some of these matters under other headings, in its 2009 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010, including Countrywide Mortgage-Backed Securities Litigation; IndyMac Litigation; Merrill Lynch Subprime-related Matters; and Federal Home Loan Bank of Seattle Litigation.

The bank also disclosed a mortgage related suit where it was named as a defendant in the Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. case and also as a defendant in the The Charles Schwab Corporation v. BNP Paribas Securities Corp. case.

Again, no predictions were made and many suits in general often contain strong dollar sums.  What the bank did note in the “Litigation and Regulatory Matters” section was as follows:

• In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.

The FULL 10-Q SEC FILING is here.  There are outside reports also in that the banking giant has rejected mortgage buyback demands.  With just over an hour until the market close, Bank of America stock is now up only about 1.5% at $12.31 on very active trading.  Shares have pulled back throughout the day and shares were as high as $12.71 earlier in the trading day.

JON C. OGG