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Documents released as part of the $16.65 billion settlement between Bank of America and the Justice Department read like a highlight reel of the mortgage sins that fed the 2008 financial crisis, according to an analysis in today’s New York Times. As part of the deal, the bank and the Justice Department agreed to a “statement of facts” that offers a window into some of the darkest corners of the Countrywide and Merrill mortgage machine that was responsible for funneling a stream of troubled loans that helped devastate the global financial system. The settlement comes as federal prosecutors in Los Angeles are preparing a lawsuit against Mozilo, who built Countrywide into one of the nation’s largest mortgage lenders before Bank of America acquired the company in 2008. According to the statement of facts, Mr. Mozilo sent an email to a Countrywide executive on Aug. 1, 2005, warning about a collapse in some condominium markets in Las Vegas and Florida, which were then swarming with speculators looking for quick profits. “I am becoming increasingly concerned about the environment surrounding the borrowers who are utilizing the pay option loan and the price level of real estate in general but particularly relative to condos,” Mozilo wrote, according to the Justice Department documents. Mozilo said Countrywide should stop holding those loans on its books. Yet for the next two years, according to the documents, Countrywide continued to originate pay option loans — which had interest rates that would reset after a few years — and sell them to Wall Street. The Justice Department documents also show the failings of the government’s efforts to protect itself against insuring defective mortgages.

Capmark Financial Group reached a settlement with its former head honcho over the nearly $17 million he received when he left the commercial real estate lender the year before its bankruptcy, but one key detail is under wraps — how much the individual will pay, the Wall Street Journal reported today. The proposed settlement would end Capmark’s effort to claw back the $16.7 million paid to former Chief Executive William F. Aldinger III and a family trust on his way out the door. Mr. Aldinger, who is also a former chairman and chief executive officer of HSBC Finance Corp., left Capmark in December 2008. The company filed for bankruptcy protection in October 2009, joining a long list of real-estate lenders toppled by the global financial crisis. However, the deal aims to keep secret the amount of money Aldinger will return to Capmark to settle the litigation. To explain why it’s necessary to hide the amount, Capmark noted that Aldinger is retired and doesn’t need the publicity that will certainly attend the news of the settlement.

The court-appointed trustee overseeing the liquidation of Thornburg Mortgage Inc. has reached a deal with Barclays Capital Inc. to settle a subprime-era lawsuit alleging the bank made improper margin calls that helped drive the mortgage lender into bankruptcy, Dow Jones Daily Bankruptcy Review reported today. According to the terms of the proposed settlement filed Wednesday in U.S. Bankruptcy Court in Baltimore, Barclays would pay the trustee $23 million for the benefit of Thornburg's creditors.

First Investors Financial Services Group agreed to pay a $2.75 million penalty to regulators over accusations that it consistently gave giant credit reporting agencies like Experian and Equifax flawed reports about thousands of car buyers, the New York Times reported today. The reports, the Consumer Financial Protection Bureau said, exaggerated the number of times that borrowers fell behind on their bills, a mistake that could jeopardize their ability to find housing or even get jobs. First Investors, which is owned by a prominent New York private equity firm, did not acknowledge any wrongdoing. The action comes as regulators and prosecutors worry that some of the same lending abuses that plagued the mortgage market in the run-up to the financial crisis — and signs that some borrowers’ loan applications included false information about income and employment — are showing up in the subprime auto market.

Bank of America Corp. is set to pay a record settlement of nearly $17 billion over its mortgage lending, capping a legal odyssey that has dogged it since the depths of the financial crisis, the Wall Street Journal reported today. The deal will resolve a government investigation that stems largely from the bank's purchases of Merrill Lynch & Co. and Countrywide Financial Corp. as they teetered in the housing crisis. More than $1 billion of the payout from the Charlotte, N.C.-based bank could go to a handful of states. The settlement amount is the largest ever reached between the U.S. and a single company, and is approximately equal to the bank's total profit for the past three years. Bank of America has spent more than $60 billion on legal woes stemming from the financial crisis, and the latest settlement would push the tab to close to $80 billion. (Subscription required.)

Countrywide Financial Corp. co-founder Angelo Mozilo hasn’t entirely escaped prosecutors’ wrath for his company’s risky lending, Bloomberg News reported yesterday. A U.S. government task force wielding an innovative legal strategy plans to bring a civil case against him over the excesses of the subprime-mortgage boom. The last-ditch effort comes three years after the Justice Department abandoned a criminal probe of Mozilo. In 2012, public anger over the lack of prosecutions stemming from the financial crisis spurred the Obama administration to create a team devoted to investigating fraud in mortgage-backed securities. The group has wrestled at least $20 billion from Wall Street banks using a law with a relatively low threshold for suing and a long period to bring cases. Relying on the same anti-fraud law, the Financial Institutions Reform, Recovery and Enforcement Act, the U.S. attorney’s office in Los Angeles is preparing to sue Mozilo and as many as 10 other former Countrywide employees. The case may be helped along by an imminent U.S. settlement with Bank of America Corp., which acquired Countrywide in 2008.

Lehman Brothers Holdings Inc.'s brokerage is asking a U.S. court to reconsider its ruling affirming Barclays PLC's right to billions of dollars in disputed assets, saying that the decision throws into question the integrity of bankruptcy sales, the Wall Street Journal reported today. The trustee unwinding the brokerage, Lehman Brothers Inc., on Tuesday asked the U.S. Court of Appeals for the Second Circuit for a new hearing before the entire bench of judges rather than a three-judge panel. Lawyers for the trustee, James W. Giddens, said that the decision increases Barclays' gain from its purchase of Lehman's brokerage in a 2008 bankruptcy court sale and will cut into the money that is available to pay the brokerage's creditors.

Argentina plans to pay its foreign-currency bonds locally to sidestep a U.S. court ruling that blocked payments last month and caused the nation to default for a second time in 13 years, Bloomberg News reported today. The government will submit a bill to Congress that lets overseas debt holders swap into new bonds governed by domestic law with the same terms, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee. Holders of Argentina’s $30 billion of overseas bonds have been in limbo since U.S. District Court Judge Thomas Griesa blocked the nation’s attempt to pay $539 million in interest due by July 30. His ruling was meant to compel Argentina to resolve unpaid debts from its 2001 default. While most creditors agreed to provide debt relief, hedge funds led by billionaire Paul Singer’s Elliott Management Corp. refused and successfully sued for full repayment in U.S. court.
http://www.bloomberg.com/news/print/2014-08-19/argentina-to-pay-bondhol…

In related news, the International Swaps and Derivatives Association (ISDA) has delayed the auction to settle Argentina's credit default swaps until at least September, Reuters reported yesterday. ISDA's 15-member determinations committee voted unanimously yesterday to postpone the auction until at least after September 2. The committee today began discussing a challenge it received regarding the inclusion of two Japanese-law restructured notes into the list of securities deliverable into the auction. As the challenge needs to be resolved before the auction can take place, the committee opted to postpone the date of the auction, which was originally scheduled for August 21.
http://www.reuters.com/article/2014/08/19/argentina-debt-cds-idUSL2N0QP…

In a settlement announced yesterday by New York State’s financial regulator, Standard Chartered will pay a $300 million fine and suspend an important business activity because of its failure to weed out transactions prone to money-laundering, a punishing reminder of settlements in 2012, the New York Times reported today. Those settlements resolved accusations that Standard Chartered, in part through its New York branch, processed transactions for Iran and other countries blacklisted by the United States. The New York regulator, Benjamin M. Lawsky, once again penalized Standard Chartered for running afoul of the 2012 settlement, which he said required the bank to “remediate anti-money-laundering compliance problems.” An independent monitor, hired as part of Lawsky’s 2012 settlement, recently detected that the bank’s computer systems failed to flag wire transfers flowing from areas of the world considered vulnerable to money-laundering, according to Lawsky’s order. The order did not specify the number of transactions that the bank’s filters failed to identify, but a person briefed on the matter said that it was “in the millions.”

The Federal Reserve must clarify its emergency lending authority rules to foreclose the possibility of “backdoor bailouts” in a future financial crisis, a bipartisan group of lawmakers said in a letter yesterday, Bloomberg News reported. The central bank’s proposed rules for emergency lending place “no meaningful restrictions” on its lending powers in a time of crisis, inviting the prospect of assistance similar to that provided five years ago, 15 Senate and House members wrote in the letter to Federal Reserve Chair Janet Yellen. “If the board’s emergency lending authority is left unchecked, it can once again be used to provide massive bailouts to large financial institutions without any congressional action,” the group wrote. “The board’s proposed rule fails to strike the appropriate balance between promoting financial stability and mitigating moral hazard.” The letter was signed by 15 members of Congress led by Sens. Elizabeth Warren (D-Mass.) and David Vitter (R-La.), and Reps. Scott Garrett (R-N.J.) and Michael Capuano (D-Mass.). In their letter yesterday, the lawmakers urged the Fed to establish a time limit for financial institutions’ use of the emergency lending and duration of each lending facility as well as creation of procedures for orderly unwinding of any emergency program. They also recommended that the central bank create a penalty rate for any assistance.
http://www.bloomberg.com/news/print/2014-08-18/fed-urged-to-ensure-emer…

Click here to read the full text of the letter.
http://www.warren.senate.gov/files/documents/2014-8-18%20Ltr%20to%20Fed…