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Today, the nation's largest bank - Bank of America - says it will temporarily halt the sales of foreclosed properties in all 50 states as it reviews how it handled foreclosures.
The latest aftershock from the housing meltdown threatens one of the nation’s largest financial institutions. In early 2008, Bank of America bought Countrywide, then the nation’s largest home loan company. Countrywide had been devastated by risky loan writing practices, and B of A essentially bought it at fire sale prices.
As Steve Proffitt explains, of those troubled mortgages were bundled up and sold to investors as mortgage-backed securities. As part of the terms, the seller gave the buyer a warranty, promising that the mortgages underlying the security met certain conditions. For instance, the seller might guarantee that only 15% of the mortgages in the bundle were sub-prime.
Now PIMCO, the huge Newport Beach-based investment firm, has given notice to B of A that the bank is in violation of those warranties. How much could it cost B of A to make things right? Estimates vary from hundreds of millions of dollars to as much as one hundred billion dollars.