Bank of America faces new lawsuit over Countrywide
The subprime litigation nightmare that Bank of America Corp. inherited with its acquisition of Countrywide Financial Corp. was compounded Thursday when 16 investors — including the giant California Public Employees’ Retirement System — brought a new lawsuit alleging that Countrywide misled them about the risks it was taking.
The suit filed in federal court in Los Angeles is a setback for Bank of America, which has sought to put the subprime morass behind it by striking settlements with a range of securities holders.
The banking giant about a month ago announced an $8.5-billion settlement with nearly two dozen investment firms whose mortgage-backed securities plunged in value when the housing market collapsed.
A Bank of America spokesman refused comment on the latest lawsuit.
The plaintiffs in the latest suit were among nearly three dozen investors who opted out of a separate $624-million settlement that Bank of America reached with shareholders last year.
The plaintiffs, which also include money manager BlackRock Inc. and several T. Rowe Price mutual funds, allege that Countrywide intentionally downplayed its shift from a traditional to a high-risk lender.
“Beginning in 2003, Countrywide changed its business model to originate as many loans as possible by increasingly producing subprime, nontraditional and risky loans while disregarding its underwriting standards,” the investors said in the lawsuit.
The suit, which seeks hundreds of millions of dollars in compensation, relies on statements from unidentified former Countrywide insiders who claim the company engaged in abuses such as overstating the creditworthiness of borrowers.
Many of the allegations have appeared in other suits against Countrywide, which Bank of America purchased in 2008.
The plaintiffs in the latest lawsuit are an eclectic mix of public agencies and private investors that also includes the Government of Guam Retirement Fund, Montana Board of Investments and an anesthesiologist in Kalamazoo, Mich., named Barbara A. Page.
