My New Blog

Investors who bought bonds backed by shaky loans scored a major victory Wednesday with the announcement that Bank of America will pay more than $8 billion to make up for some of their losses.

Homeowners on the other end of those shaky mortgages — especially those most at risk of foreclosure — may have less to cheer about.

In the largest settlement to date related to the rogue mortgage lending wave, Bank of America said Wednesday it would pay $8.5 billion to settle claims with investors holding about $100 billion worth of mortgage-related securities sold by its Countrywide unit. The winners include 22 large investors such as Pimco, Metropolitan Life and BlackRock, as well as the Federal Reserve Bank of New York.

Aside from their claims that Countrywide sold them bonds backed by faulty loans, the investors argued that by continuing to service bad loans rather than speeding up foreclosures, the Bank of America unit ran up servicing fees, profiting at the expense of investors.

As a result the settlement includes a promise to hire additional “subservicers” to speed up the foreclosure process for high-risk loans. That means Bank of America borrowers whose foreclosure have been on hold may now see the process accelerated.

“Living with the uncertainty of foreclosure can’t be a pleasant experience,” said Bank of America spokesman Jerry Dubrowski. “The sooner we can deal with that overhang the better for the economy.”

Bank of America also faces considerable uncertainty as it continues to try put its mortgage woes behind it.

While the bank said its settlement would resolve "nearly all" its exposure related to mortgages issued by Countrywide, only holders of about a quarter of the securities have agreed to support the deal. Hundreds of investors holding an additional $300 billion worth of securities have yet to agree to the settlement, which also is subject to court approval. There are no guarantees that the remaining investors will go along.

“It is not possible to predict whether and to what extent challenges will be made to the settlement or the timing or ultimate outcome of the court approval process,” Bank of America said in its press release announcing the settlement.