Bank of America 2011 Annual Report Download - page 229

Bank of America 2011 227
refinancing assistance commitments over a three-year period. In
addition, the Corporation could be required to pay an additional
$350 million if the Corporation fails to meet certain first-lien
principal reduction thresholds over a three-year period. The
Corporation also entered into agreements with several states
under which it committed to perform certain minimum levels of
principal reduction and related activities within those states as
part of the Global AIP, and under which it could be required to make
additional payments if it fails to meet such minimum levels. The
Corporation may also incur additional operating costs (e.g.,
servicing costs) to implement certain terms of the Global AIP in
future periods. The FHA AIP provides for an upfront cash payment
by the Corporation of $500 million. The FHA would release the
Corporation from all claims arising from loans originated prior to
April 30, 2009 that were submitted for FHA insurance claim
payments prior to January 1, 2012, and from multiple damages
and penalties for loans that were originated on or before April 30,
2009, but had not been submitted for FHA insurance claim
payment. The Corporation would have the obligation to pay an
additional $500 million if the Corporation fails to meet certain
principal reduction thresholds over a three-year period.
Pursuant to an agreement in principle, the OCC agreed to hold
in abeyance the imposition of a civil monetary penalty of $164
million. Pursuant to a separate agreement in principle, the Federal
Reserve will assess a civil monetary penalty in the amount of $176
million against the Corporation. Satisfying its payment, borrower
assistance and remediation obligations under the Global AIP will
satisfy any civil monetary penalty obligations arising under these
agreements in principle. If, however, the Corporation does not make
certain required payments or undertake certain required actions
under the Global AIP, the OCC will assess, and the Federal Reserve
will require the Corporation to pay the difference between the
aggregate value of the payments and actions under these
agreements in principle and the penalty amounts.
Under the terms of the Global AIP, the federal and participating
state governments would release the Corporation from further
liability for certain alleged residential mortgage origination,
servicing and foreclosure deficiencies. In settling origination
issues related to FHA guaranteed loans originated on or before
April 30, 2009, the FHA would provide the Corporation and its
affiliates a release for all claims with respect to such loans if an
insurance claim had been submitted to the FHA prior to January
1, 2012 and a release of multiple damages and penalties (but not
single damages) if no such claim had been submitted.
The Servicing Resolution Agreements do not cover claims
arising out of securitization, including representations made to
investors respecting MBS, criminal claims, private claims by
borrowers, claims by certain states for injunctive relief or actual
economic damages to borrowers related to the Mortgage
Electronic Registration System, and claims by the GSEs (including
repurchase demands), among other items.
The Corporation continues to be subject to additional borrower
and non-borrower litigation and governmental and regulatory
scrutiny related to its past and current servicing and foreclosure
activities, including those claims not covered by the Servicing
Resolution Agreements. This scrutiny may extend beyond the
Corporation’s pending foreclosure matters to issues arising out of
alleged irregularities with respect to previously completed
foreclosure activities. The current environment of heightened
regulatory scrutiny may subject the Corporation to inquiries or
investigations.
Ocala Litigation
BNP Paribas Mortgage Corporation and Deutsche Bank AG each
filed claims (the 2009 Actions) against BANA in the U.S. District
Court for the Southern District of New York entitled BNP Paribas
Mortgage Corporation v. Bank of America, N.A. and Deutsche Bank
AG v. Bank of America, N.A. Plaintiffs allege that BANA failed to
properly perform its duties as indenture trustee, collateral agent,
custodian and depositary for Ocala Funding, LLC (Ocala), a home
mortgage warehousing facility, resulting in the loss of plaintiffs’
investment in Ocala. Ocala was a wholly-owned subsidiary of Taylor,
Bean & Whitaker Mortgage Corp. (TBW), a home mortgage
originator and servicer which is alleged to have committed fraud
that led to its eventual bankruptcy. Ocala provided funding for
TBW’s mortgage origination activities by issuing notes, the
proceeds of which were to be used by TBW to originate home
mortgages. Such mortgages and other Ocala assets in turn were
pledged to BANA, as collateral agent, to secure the notes. Plaintiffs
lost most or all of their investment in Ocala when, as the result of
the alleged fraud committed by TBW, Ocala was unable to repay
the notes purchased by plaintiffs and there was insufficient
collateral to satisfy Ocala’s debt obligations. Plaintiffs allege that
BANA breached its contractual, fiduciary and other duties to Ocala,
thereby permitting TBW’s alleged fraud to go undetected. Plaintiffs
seek compensatory damages and other relief from BANA, including
interest and attorneys’ fees, in an unspecified amount, but which
plaintiffs allege exceeds $1.6 billion.
On March 23, 2011, the U.S. District Court for the Southern
District of New York issued an order granting in part and denying
in part BANA’s motions to dismiss the 2009 Actions. The court
dismissed plaintiffs’ claims against BANA in its capacity as
custodian and depositary, as well as plaintiffs’ claims for
contractual indemnification and other claims. The court retained
the claims questioning BANA’s performance as indenture trustee
and collateral agent. Finally, the court agreed with BANA that
plaintiffs may not pursue claims for any breach that arose prior to
July 20, 2009 (the date on which plaintiffs purchased the last
issuance of Ocala notes). On December 29, 2011, plaintiffs moved
for leave to amend their complaints to include additional
contractual, tort and equitable claims.
On June 22, 2011, BANA filed third-party complaints in the
2009 Actions against BNP Paribas Securities Corp. (BNP
Securities) and Deutsche Bank Securities, Inc. (Deutsche
Securities) seeking contribution for damages sustained by BANA
in the underlying actions. BNP Securities and Deutsche Securities
(collectively, the Note Dealers) served as note dealers and private
placement agents for the Ocala notes that are the subject of the
underlying actions. On September 15, 2011, the Note Dealers
moved to dismiss the third-party complaints.
On August 30, 2010, plaintiffs each filed new lawsuits (the
2010 Actions) against BANA in the U.S. District Court for the
Southern District of Florida entitled BNP Paribas Mortgage
Corporation v. Bank of America, N.A. and Deutsche Bank AG v. Bank
of America, N.A., which the parties agreed to transfer to the U.S.
District Court for the Southern District of New York as related to
the 2009 Actions. On December 29, 2011, plaintiffs voluntarily
dismissed the 2010 Actions without prejudice and moved for leave
to amend their complaints in the 2009 Actions, as discussed
above.
On October 1, 2010, BANA, on behalf of Ocala’s investors, filed
suit in the U.S. District Court for the District of Columbia against
the FDIC as receiver of Colonial Bank, TBW’s primary bank, and
Platinum Community Bank (Platinum, a wholly-owned subsidiary