Bank of America Mortgage Legal Issues Intensify

Last Updated Jun 17, 2011 10:14 AM EDT

It's been a rough couple of weeks for Bank of America, the largest U.S. bank in terms of assets. On Monday, New York Attorney General Eric Schneiderman launched a formal probe into the financial institution's mortgage securitization practices.

The probe is part of a larger investigation that is looking to determine whether mortgage companies followed New York state legal protocol when creating and selling mortgage-backed securities. The Attorney General and his staff have uncovered potential evidence that raises questions about whether Bank of America passed along the required documents to independent entities that oversee securities for investors.

In a number of cases where these independent arms initiated action to foreclose on borrowers' homes, investigators wonder if faulty documentation may have precluded the legal right to claim the real estate.

While the investigation has only just begun, it has the potential for major fallout for the bank. Wall Street's mortgage securitization operations, which were a huge moneymaker most of last decade, co-opted millions of home loans and bundled them into securities for investor resale. If the transactions ultimately prove to be illegal, the investors who purchased them may have recourse to force lending institutions to buy them back. This would mean major losses (into the hundreds of billions of dollars, maybe more) for Bank of America and other affected players. One analyst said Bank of America's losses could total more than $27 billion alone.
The ongoing probe is a blow for Bank of America, which in recent weeks has racked up bad karma points. Last week, the Associated Press reported about a Florida couple who won a judge's approval to foreclose on a Naples Bank of America branch office. Seriously.

Warren and Maureen Nyerges had already won their case against the lending institution, which concluded that Bank of America had wrongly initiated proceedings to foreclose upon their home, for which they had already paid cash. However, the bank was slow to reimburse the couple for their acquired legal fees, and so finally, with patience exhausted, the Nyerges' took the unusual step of appearing with sheriff's deputies and a truck, ready to seize any collateral they could grab.

In addition to creating an entertaining spectacle, the move reflected Main Street's growing impatience with banks who have been unwilling to help the millions of Americans who have been financially damaged by the Great Recession, and somewhat inept at rectifying systemic errors.

We asked Bank of America to comment. Dan B. Frahm, a spokesperson for the bank, said "We are very sorry for our errors and the resulting experience Mr. Nyerges had with Bank of America. We have fully paid the amount owed. While the matter is now resolved, we're embarrassed by this chain of events and the trouble this has caused him. We will improve our process to prevent these errors in the future."

What's your take on the New York Attorney General's case against Bank of America? Is this just the tip of the iceberg?
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.
  • Ilyce Glink On Twitter»

    Ilyce R. Glink is an award-winning, nationally syndicated columnist, best-selling book author, and radio talk show host who also hosts "Expert Real Estate Tips," a Internet video show. She owns ThinkGlink.com as well as Think Glink Media, a privately held company that provides consulting, content and video services to companies and non-profit organizations.

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