Lawsuit alleges failure to cover legal costs related to subprime mortgages
UBS has filed a lawsuit against Bank of America, seeking $200 million in compensation for legal costs related to risky mortgages issued before the 2008 global financial crisis, Reuters reported.
The Swiss bank claims that Bank of America, which acquired Countrywide Financial in 2008, is refusing to cover these expenses, despite previous agreements.
Countrywide, acquired by Bank of America in 2008, was notorious for its lax lending standards, which contributed to the housing bubble and subsequent financial meltdown. UBS bundled Countrywide mortgages into securities and is now seeking indemnification for legal costs incurred from lawsuits related to these troubled loans.
According to the lawsuit filed in a New York state court in Manhattan, Countrywide had agreed to indemnify UBS against claims that the mortgages were underwritten poorly or fraudulently.
UBS reached an $885 million agreement with the US Federal Housing Finance Agency in 2013 and another confidential settlement with the Federal Home Loan Bank of San Francisco in 2016, both related to Countrywide’s loans.
Despite extended negotiations, Bank of America has reportedly refused to cover $53 million in legal costs, prompting UBS to take legal action.
Countrywide Financial was notorious for its subprime mortgage exposure, offering loans with minimal documentation and low initial payments. This approach allegedly contributed significantly to the housing bubble, which burst when home prices plummeted.
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Bank of America’s acquisition of Countrywide for $2.5 billion in July 2008 came at a steep cost, as the bank has since faced substantial legal and financial burdens related to Countrywide’s practices.
As UBS seeks to recover its legal costs, the case could potentially open up further disputes over the responsibilities and liabilities associated with crisis-era financial products and acquisitions.
The lawsuit, UBS Americas et al v. Countrywide Home Loans Inc et al, is currently being reviewed in the New York State Supreme Court, New York County.
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