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More mortgage migraines

By Judy Martel ·
Friday, February 8, 2013
Posted: 6 pm ET

Accusations of wrongdoing during the housing crisis are not going away anytime soon. On Tuesday, Attorney General Eric Holder announced that the U.S. government is bringing a civil lawsuit for more than $5 billion against Standard & Poor's over mortgage bond ratings.

Expectations of the lawsuit caused shares of McGraw-Hill, Standard & Poor's parent company, to experience its biggest one-day percentage drop since 1987 on Monday. The stock fell 13.8 percent, according to CNBC.

Holder is charging that Standard & Poor's misled investors with its bond ratings and ignored questions raised by analysts. This is the first federal charge against a ratings agency, but investors apparently believe it might not be the last. According to CNBC, shares of another ratings agency, Moody's, dropped 10.7 percent Monday on news of the suit against Standard & Poor's.

Bank of America's Countrywide troubles

In a separate action, Bank of America is being accused of questionable loan practices by three Federal Home Loan Banks and by an investment firm that purchased mortgage securities.

In 2008, Bank of America acquired Countrywide Financial, which specialized in subprime mortgages. According to The New York Times, Bank of America has already set aside $40 billion to settle claims of mortgage misconduct that happened at Countrywide before the bank's acquisition.

New documents filed last week in the state Supreme Court in Manhattan say that Bank of America has not made enough financial restitution. Triaxx and three Federal Home Loan Banks, from Boston, Indianapolis and Chicago, say that the $8.5 billion proposed settlement by the bank in 2011 is insufficient to make up for the losses to thousands of investors.

The documents say that Bank of America failed to buy back distressed mortgages in full after it modified them, which would be in violation of the agreement with investors who purchased the mortgage-backed securities.

"Modifying mortgages for homeowners in severe distress is critical to the ongoing economic recovery and is encouraged by the government at all levels," spokesman Lawrence Grayson told The New York Times. "It is difficult to see how federally regulated entities like the Federal Home Loan Banks would seek to attack that practice which helps families to stay in their homes and in no way violated the contracts at issue."

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February 22, 2013 at 2:19 pm

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