MBS Bond Holders Sued BAC Over BAC’s Dependence On MERS And Sub-Prime Mortgages

Bank of America Corp has reached a $335 million settlement with the Pennsylvania Public School Employees’ Retirement System and disgruntled shareholders accusing it of misleading shareholders. Shareholders allege BAC exposed them to risky mortgages because of BAC’s dependence on the often unreliable MERS database.

BAC disclosed the accord in its quarterly report filed on Friday with the SEC. BAC management wrote in the report the bank set aside enough reserves for the settlement as of June 30. Although, final documentation and court approval are still needed to make the settlement final.

Shareholders led by the Pennsylvania Public School Employees’ Retirement System claimed they were misled into buying BAC stock in 2009 and 2010. This included stock sold to repay $45 billion of federal bailout money.

Shareholders allege that BAC knew it could not raise enough capital to buy back billions of dollars of securities backed by risky loans that were originated by Countrywide Financial Corp.

Shareholders also allege BAC knew that record keeping in the MERS registry was so poor that it would not be able to legally foreclose on thousands of delinquent mortgages.

MERS was established in 1995 to circumvent the often cumbersome process of transferring ownership of mortgages and recording changes with county clerks across the U.S.

MERS was also established to help lenders dodge local and state taxes and recording fees on mortgage assignments. 

BAC has spent more than $70 billion since the financial crisis began to resolve legal and regulatory matters. Most of whom are due to its purchases of Countrywide Financial in July 2008 and Merrill Lynch & Co six months later.

The case is Pennsylvania Public School Employees’ Retirement System et al v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 11-00733.