Bank of America Faces a New Lawsuit from UBS For $200 million in indemnification for legal expenses resulting from settlements over defective mortgages Countrywide Financial Corporation produced before the 2008 financial crisis, UBS Group AG has sued Bank of America Corporation. The lawsuit serves as just another reminder of the long-lasting effects of the subprime mortgage programs that brought about the world financial catastrophe.

Particularly in relation to subprime mortgage lending, the financial crisis of 2008 exposed general flaws in the global financial system. The former biggest U.S. mortgage lender, Countrywide Financial Corporation, focused on aggressive lending to subprime borrowers and became one centre of this issue. In 2008 Bank of America bought Countrywide and assumed its assets and liabilities. UBS Group AG has sued Bank of America alleging that the latter had not met indemnification responsibilities for Countrywide’s pre-crisis mortgage operations.

Countrywide’s Role in the Mortgage Crisis

Early in the 2000s, Countrywide Financial Corporation was crucial in the dissemination of subprime mortgages. Lending to riskier borrowers—typically with little documentation and minimal down payments—CEO Angelo Mozilo’s company grew rapidly. These pursuits essentially drove the housing bubble, which finally collapsed and resulted in enormous defaults and the ensuing financial disaster.

Bank of America’s Acquisition of Countrywide

With rising losses and a collapsing housing market in July 2008, Bank of America paid roughly $2.5 billion for Countrywide. The agreement intended to make Bank of America a mortgage industry powerhouse. But it also exposed the bank to extensive financial and legal risks stemming from Countrywide’s past lending operations.

UBS’s Legal Claim

The New York state-court case UBS files against Bank of America calls for $200 million. The Swiss bank says Countrywide pledged to cover UBS for claims involving poorly underwritten or fraudulent mortgages. According to UBS, even after protracted negotiations, Bank of America, replacing Countrywide, has not kept these indemnity obligations.

Specific Allegations

UBS says it spent a lot of money defending legal claims connected to Countrywide’s originating defective mortgages. Such allegations produced substantial payouts, including a $885 million settlement with the U.S. Federal Housing Finance Agency in 2013 and a private deal with the Federal Home Loan Bank of San Francisco in 2016. UBS argues Bank of America has legal obligation to reimburse it for such charges, but it has not.

Legal Precedents and Implications

Previous Settlements Involving Countrywide

Several court cases and large payouts resulting from Countrywide’s mortgage lending policies have surfaced. Most importantly, among the largest class-action lawsuits in history, a $500 million settlement on investors in mortgage-backed securities came in 2013.

Moreover, in 2018 Ambac Assurance Corporation obtained a $1.84 billion settlement on behalf of claims against Bank of America businesses on mortgage-backed securities.

Potential Impact of UBS’s Lawsuit

The lawsuit of UBS draws attention to the continuous legal problems of pre-2008 mortgage lending policies. A win for UBS might set a standard for other financial companies seeking indemnification for past obligations. Conversely, a victory for Bank of America could restrict the relevance of successor responsibility in like circumstances.

Conclusion

The Case of Bank of America Faces a New Lawsuit from UBS emphasizes the long-lasting effects of the 2008 financial crisis as well as the complex judicial conflicts still resulting from those days. Although banks deal with such legacy problems, the consequences of such litigation will significantly affect how the sector handles risk management and corporate acquisitions moving ahead.