UBS sued Bank of America for US$200 million on Wednesday (Jul 31), saying the second-largest US bank refused to cover its legal costs related to risky mortgages issued before the 2008 global financial crisis.
The Swiss bank bundled mortgages from Countrywide Financial, which Bank of America bought in 2008, into securities, and said Countrywide agreed to indemnify it against claims that the mortgages were underwritten poorly or fraudulently.
UBS reached an US$885 million settlement in 2013 with the US Federal Housing Finance Agency and a confidential settlement in 2016 with the Federal Home Loan Bank of San Francisco over Countrywide’s loans.
It said that despite extended talks with Bank of America about indemnification, including for about US$53 million of legal costs, the Charlotte, North Carolina-based bank “ultimately refused to comply with its indemnification obligations.”
Bank of America did not immediately respond to requests for comment. UBS declined to comment, including on how the US$200 million was calculated. The complaint was filed in a New York state court in Manhattan.
A slew of litigation since 2008 has sought to hold lenders liable for the plunging value of residential mortgage-backed securities once considered safe.
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UBS’ lawsuit differs by seeking coverage for settlements related to those securities.
Led by the late Angelo Mozilo, Countrywide became the largest US mortgage lender by catering to subprime borrowers who might otherwise struggle to afford homes, often allowing low initial monthly payments and requiring little documentation.
Countrywide’s loans contributed to a housing bubble that burst as home prices cratered, fuelling the financial crisis and a US recession.
Bank of America bought Countrywide at a fire-sale US$2.5 billion price in July 2008. It ultimately incurred tens of billions of US dollars in legal and other costs from its purchases of Countrywide and Merrill Lynch, completed six months later. REUTERS
