U.S. Bank is suing Countrywide Financial Corp. (which is now part of Bank of America) for breach of contract. Countrywide was supposed to repurchase more than 4,000 mortgages in which it misrepresented the quality of the loan.
To put it simply: Countrywide made loans allegedly without checking the quality of the borrowers. It then sold those loans, claiming they were all high-quality. They eventually ended up with HarborView Trust, of which US Bank is a trustee.
According to the court filing, “Soon after being sold to the trust, Countrywide’s loans began to become delinquent and default at a startling rate. During the time period in which Countrywide originated the loans, it completely ignored its underwriting guidelines.”
In fact, when US Bank examined a sample of the $1.75 billion in loans, it found that 66 percent of them “conflict with representations made by Countrywide.” I.e., they were “toxic.” And part of the sale required that Countrywide repurchase any loans in which it, shall we say, overstated the quality.
Well, Countrywide/Bank of America hasn’t done that yet, and now US Bank is suing to force it to buy them all back. Bank of America had no comment on the suit.