Bank of America in the Dock

by Mark Johnston

A Federal District Court judge in the USA has recently endorsed the continued prosecution of the Bank of America by the German Deutsche Bank AG and the French mortgage lender BNP Paribas SA.  Their issues are broadly relating to the losses that they incurred through the collapse of Taylor Bean and Whittaker Mortgage Corporation. 

The honourable Robert Sweet slimmed down the case presented by the European banks but held off throwing the case out entirely.  On 23rd March, he dismissed some of the claims against Bank of America and ruled that BNP Paribas, the parent company of BNP Paribas Mortgage, as an inappropriate plaintiff in the suit.

The two European lenders began their suits separately in 2009 and claimed that they had lost circa $1.6 billion in asset backed notes.  Bean & Whitaker Mortgage Corporation provided funding for mortgage loans certified through a focused entity known as Ocala Funding LLC, with Bank of America being the trustee for the notes issues by Taylor Bean’s Ocala Funding LLC unit.

Taylor Bean collapsed has forced this issue into the courts.  Ocala used the proceeds from the sale of the Deutsche Bank and BNP mortgage units to buy mortgages that they were subsequently unable to repay.  Taylor Bean called in the administrators in August and was known as the 12th largest mortgage originator in the USA in 2009, they established Ocala in 2005 as their financing vehicle for mortgage loans.

With the losses sitting near $1.6 billion, as expected, Deutsche Bank and BNP filed suits on November 29 sighting the failure of Bank of America obligations to ensure they, as trustee, hold $1.6 billion in cash or mortgage loans as collateral.  This was their agreement and the basis of their complaint.

“BNP Paribas is pleased with the judge’s decision and we look forward to continuing to pursue our remedies in court,” spokeswoman for BNP, Megan Stinson said in a statement.  However, Judge Robert Sweet, has significantly reduced the plaintiffs’ case by dismissing 14 out of their 20 original claims, reiterating that the case should be based on the facts, to which a spokesman for Bank of America, Bill Halldin said “We look forward to presenting those facts to the court”. 

The dispute from BNP Paribas Mortgages and Deutsche Bank is about the conduct of the Bank of America.  It is claimed that BoA transferred billions out of Ocala’s accounts and failed to accurately or effectively track the mortgages it was holding as security, as it had apparently promised to do.  The claim continues on and accuses BoA of false statements about what collateral they held and that they actually and knowingly mislead the other two banks.  

Bank of America have retorted and claimed that it was not required to monitor Ocala’s use of the funds neither was it required to evaluate the entities assets and liabilities before going ahead with withdrawal requests.  Slightly foolish in the current climate where companies are folding at a ten times faster rate then 5 years ago, but are they culpable for the losses encountered.  Their day in court will let us know.

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