FDIC wins $190M settlement for toxic Countrywide mortgage bonds

Settlement stems from failure of five banks

The ghosts of Countrywide past just struck again, as the Federal Deposit Insurance Corporation announced Thursday that eight major financial institutions will pay $190 million total to settle a series of lawsuits tied to toxic Countrywide mortgage bonds that subsequently led to the failure of five banks during the housing crisis.

According to the announcement from the FDIC, Barclays Capital; BNP Paribas Securities Corporation; Credit Suisse Securities; Deutsche Bank Securities; Edward D. Jones & Co.; Goldman Sachs; RBS Securities; and UBS Securities will pay $190 million to settle claims that the banks made misrepresentations in the offering documents for 21 Countrywide residential mortgage-backed securities purchased by the five failed banks.

The FDIC sued the Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs and the others as part of its duties at the receiver for the five failed banks: Colonial Bank of Montgomery, Alabama, which failed on August 14, 2009; Franklin Bank of Houston, Texas, which failed on November 7, 2008; Guaranty Bank of Austin, Texas, which failed on August 21, 2009; Security Savings Bank of Henderson, Nevada, which failed on February 27, 2009; and Strategic Capital Bank of Champaign, Illinois, which failed on May 22, 2009.

According to the FDIC, from November 2011 through August 2012, it filed six lawsuits for violations of federal and state securities laws in connection with the sale of the 21 mortgage bonds to the failed banks. 

In its lawsuits, the FDIC claimed that the banks misrepresented loan-to-value ratios, underwriting criteria and appraisal amounts on mortgage loans that were packaged into mortgage bonds sold to the five banks.

Specifically, the FDIC alleged the financial firms violated federal and state securities laws by failing to fully disclose or truthfully represent the quality of mortgages.

In the first case, the FDIC accuses Countrywide Securities, Bank of America, Deutsche Bank and Goldman Sachs of playing a role in the packaging, selling or securitization of mortgages sold off to Guaranty Bank for $1.5 billion. The suit says Guaranty Bank acquired 8 certificates in the transaction.

The settlement resolves federal and state securities law claims brought by the FDIC.

According to the FDIC, the settlement funds will be distributed among five failed bank receiverships.

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