BofA agrees to settle credit union RMBS case for $165 million

Bank of America agreed to pay $165 million to settle a dispute launched by the National Credit Union Administration over losses stemming from BofA’s sale of residential mortgage-backed securities to individual credit unions.

The bank and certain subsidiaries entered into the settlement on Jan. 11 to resolve claims concerning certain RMBS offerings that NCUA had threatened to bring against Merrill Lynch and other affiliates, Bank of America noted in a 10-K filing with the Securities and Exchange Commission.

“The settlement amount will be covered by existing reserves,” the report said.

Lawrence Grayson, a spokesperson for Bank of America (BAC), declined to comment.

As a result of the Bank of America settlement, NCUA recovered more than a third of a billion dollars on behalf of credit unions, said Debbie Matz, board chairman of NCUA. 

“These settlements and our ongoing lawsuits further NCUA’s goal of minimizing the losses of the corporate crisis and cutting future costs to credit unions,” she said. 

Carrie Hunt, general counsel and vice president of regulatory affairs for the National Association of Federal Credit Unions told HousingWire that she is heartened by the regulator’s efforts to recover losses to the corporate system.

“NAFCU fully expects that the agency will reduce the assessments on credit unions even further. In the interest of full transparency, we are seeking clarification form the agency on whether this $165 million include the agency’s attorney fees for filing this suit.”

In all, NCUA has obtained more than $355 million in legal settlements and is a federal regulatory agency for depository institutions, giving it the incentive to recover losses from RMBS investments that harmed credit unions.

NCUA will use the net proceeds to cover some of the charges hitting credit unions from the Temporary Corporate Credit Union Stabilization Fund, which had to cover losses when five credit unions failed.

The settlement follows three similar agreements with Citigroup (C), Deutsche Bank Securities (DB), and HSBC (HBC), totaling $107.5 million. 

“We have a statutory obligation to secure recoveries for credit unions and ensure that consumers remain protected,” Matz stated. “We will continue to expend every possible effort to fulfill that important responsibility.”

Separately, the NCUA has filed 10 lawsuits against nine firms. The Bank of America settlement was the fourth one negotiated and was reached prior to litigation being filed, John Fairbanks, spokesperson for NCUA, told HousingWire.

The current projected remaining costs to credit unions are between $5.7 billion and $8 billion, Fairbanks added.

“We project credit unions will be assessed between $1.6 billion and $3.9 billion over the remaining life of the program,” he concluded. 

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