So Bank of America will shell out $335 million to settle legal claims that Countrywide Financial "systematically discriminated" (according to the LA Times) against minority borrowers. Here's the thing, though: The subprime loans in question were generated before BofA bought Countrywide in early 2008. So BofA inherited this problem, along with the rest of the long nightmare that has been Countrywide — and the bank has been at pains to point that out, stressing that it doesn't do this kind of thing.
This raises the obvious question of whether, as part of the acquisition process, BofA realized that Countrywide was pushing minority borrowers into subprime loans. The federal government was certainly on the case. The Fed alerted the Justice Department to it in 2007.
You can now see how Countrywide was operating, opportunistically urging borrowers to go subprime — especially if those borrowers would have qualified for a conventional prime loan. Countrywide was invested in generating subprime loans — that was its business model. It certainly couldn't make as much money on prime loans, nor could it presumably garner as much interest from firms that wanted to package higher-risk, higher-return loans into securities that could then be given the general thumbs up by the credit ratings agencies.
On balance, the $335 million settlement is a drop in the bucket when you consider the billions in legal liabilities that Countrywide still has — and has already settled. The bank had already agreed, for example, to an $8.5 billion settlement earlier this year, to deal with lawsuits stemming from mortgage-backed securities derived from Countrywide loans.
But at least it's a step in the right direction for BofA, which has seen its share price hammered down 60 percent this year. It briefly dipped below $5 this week, but has since recovered slightly, probably on the news that a few hundred million in Countrywide's bad practices has been taken off the table.
But, as the New York Times points out, BofA's woes are far from over:
While Wednesday’s settlement put one legal headache behind the bank, the second-largest in the United States by assets, it still faces legal challenges on a host of other fronts. Besides the effort to force it to buy back the defaulted mortgages, Bank of America and other large servicers are in the final stages of negotiations with state attorneys general to settle an investigation into improper foreclosure practices. That settlement could cost the largest servicers more than $20 billion.
These lingering legals troubles have kept the specter of a Countrywide bankruptcy and possibly a Bank of America break-up in the picture. Steven Davidoff outlined the prospects for the NYT in August, explaining why BofA can't easily wall-off its Countrywide problem.
In Southern California, anything that goes horribly, horribly wrong with BofA is a big deal. The bank holds $200 billion in SoCal deposits alone. So it's something to keep an eye on. And maybe more than an eye.