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Bank of America Corp. could put its Countrywide Financial unit into bankruptcy if it fails to win court approval for an $8.5 billion settlement with mortgage investors, a bank executive said yesterday, according to Reuters. Chief Risk Officer Terrence Laughlin was testifying at a hearing in New York state court on whether to approve the deal, which would settle claims by investors who said Countrywide misrepresented the mortgages underlying bonds they bought. During negotiations leading up to the June 2011 settlement, Bank of America threatened to put Countrywide, which it had rescued at the height of the financial crisis in 2008, into bankruptcy. That possibility was still on the table, Laughlin said yesterday. American International Group Inc. and a handful of other investors are challenging the deal, saying that it offers only pennies on the dollar.

Fannie Mae and Freddie Mac shareholders sued the U.S., alleging that the 2008 takeover of the housing lending giants was illegal and cost investors billions of dollars, Bloomberg News reported yesterday. The takeover of the mortgage companies by the Federal Housing Finance Agency, “while beneficial to the economic welfare of the nation, destroyed the value of Fannie Mae’s and Freddie Mac’s common and preferred stock and trampled the private ownership rights” of shareholders, according to the complaint filed yesterday in the U.S. Court of Federal Claims in Washington, D.C. The shareholders’ complaint, seeking $41 billion in damages, was filed by the Seattle-based law firm Hagens Berman Sobol Shapiro LLP. Investors in Fannie Mae and Freddie Mac have taken a renewed interest in the companies’ future now that they have started posting record profits as the housing market rebounds. Fannie Mae had its best year ever in 2012, reporting net income of $17.2 billion for 2012. Freddie Mac, the smaller of the two, reported earning $11 billion last year. Both have said they expect to remain profitable.

Bank of America Corp.’s $8.5 billion mortgage-bond settlement is “outstanding” for investors, said a Pacific Investment Management Co. executive, who defended the deal against opposition, Bloomberg News reported yesterday. The settlement was reached after an investor group that included Pimco and BlackRock Inc. at first demanded $12 billion, eventually coming down to a “take it or leave it” offer of $8.5 billion, Kent Smith, an executive vice president at Newport Beach, Calif.-based Pimco who helped negotiate the agreement, testified on Thursday. Smith was the first witness to testify in a trial over the agreement, which is being considered by Justice Barbara Kapnick in New York State Supreme Court in Manhattan. The accord resolves claims from Countrywide Financial mortgage-bond investors over loans bundled into securities. American International Group Inc. is fighting the settlement, saying that Bank of America isn’t paying enough to compensate investors.

The National Fair Housing Alliance announced yesterday that Wells Fargo has agreed to spend at least $42 million to settle allegations that it neglected the maintenance and marketing of foreclosed homes in black and Latino neighborhoods across the country, the Washington Post reported today. A year-long investigation by the advocacy group found that homes serviced by Wells Fargo in minority communities were far more likely than those in white areas to be left in disrepair, with broken windows, unkempt yards or water damage. These homes were also less likely to have for-sale signs than ones in predominantly white neighborhoods. Under the agreement, Wells Fargo, which did not admit any wrongdoing, will provide $27 million to nonprofit groups to promote homeownership, neighborhood stabilization and property rehabilitation in minority communities in 19 metropolitan areas. It will also provide $11.5 million to the Department of Housing and Urban Development to help 25 other cities.

Bank of America Corp.’s $8.5 billion mortgage-bond settlement is “outstanding” for investors, said a Pacific Investment Management Co. (Pimco) executive, who defended the deal against opposition, Bloomberg News reported today. The settlement was reached after an investor group that included Pimco and BlackRock Inc. at first demanded $12 billion, eventually coming down to a “take it or leave it” offer of $8.5 billion, Kent Smith, an executive vice president at Pimco who helped negotiate the agreement, testified yesterday. Smith was the first witness to testify in a trial over the agreement, which is being considered by Justice Barbara Kapnick of New York State Supreme Court in Manhattan. The accord resolves claims from Countrywide Financial mortgage-bond investors over loans bundled into securities. American International Group Inc. is fighting the settlement, saying that Bank of America isn’t paying enough to compensate investors.

BlackRock Inc. and other investors agreed to an $8.5 billion settlement with Bank of America Corp. over mortgage loans rather than risk litigation and the bankruptcy of its Countrywide Financial unit, Bloomberg News reported yesterday. The accord came after the investors were told by Bank of America that it had clearance from a federal banking regulator to put Countrywide, which was facing investor claims over defective loans, into bankruptcy, Kathy Patrick, an attorney for the investor group, said in court yesterday. The BlackRock group, which also includes Pacific Investment Management Co. and MetLife Inc., is asking Justice Barbara Kapnick of New York State Supreme Court in Manhattan to approve the settlement, which was reached in June 2011. The hearing on approval started on Monday. The agreement would resolve claims from mortgage-bond investors over Countrywide loans that were packaged into securities. It is opposed by an investor group led by American International Group Inc.

The Federal Housing Administration's projected losses over 30 years could reach as high as $115 billion under a previously undisclosed "stress test" conducted last year to determine how the agency would fare under an extremely severe economic scenario, according to documents reviewed by a congressional committee, the Wall Street Journal reported today. The forecast was significantly worse than the most severe estimate included in the government mortgage-insurance agency's independent actuarial review released last November. The FHA's outside actuaries modeled the analysis along the lines of the annual stress test employed by the Federal Reserve Board, which gauges how the nation's largest financial institutions would fare in the event of a significant economic shock. The FHA isn't required to use the Fed test. The findings are part of an investigation by the House Oversight and Government Reform Committee, headed by Rep. Darrell Issa (R-Calif.).

A bipartisan group of U.S. senators is putting the final touches on a bill that would liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital, Bloomberg News report yesterday. The legislation, written by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) with input from other senators, is likely to be the first detailed blueprint reflecting a growing consensus in Washington, D.C., that the U.S. role in mortgage finance should be limited to assuming risk only in catastrophic circumstances. The draft bill would require private financiers to take a first-loss position adequate to cover price declines as steep as those seen during recessions over the past century. According to the draft, Washington, D.C.-based Fannie Mae and McLean, Va.-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees.

HSBC Holdings Plc broke New York foreclosure law and put homeowners at greater risk of losing their homes, according to New York Attorney General Eric Schneiderman, who said that he is suing the bank today, Bloomberg News reported today. A state investigation found that HSBC has left homeowners languishing in foreclosure by failing to meet requirements for giving them an opportunity to negotiate loan modifications, according to Schneiderman’s office. The lawsuit comes as state attorneys general nationwide have targeted banks over foreclosure practices, last year reaching a $25 billion settlement with five mortgage servicers, including Bank of America Corp. and Wells Fargo & Co. HSBC was not part of that settlement.

Triad Guaranty Inc. filed for chapter 11 protection yesterday after the mortgage insurer was hurt by higher insured losses on the back of weakness in the jobs and housing markets, Reuters reported today. Triad, which sells mortgage insurance to residential mortgage lenders, said in its court filing that its loss ratios had been hit by "continued high unemployment in the U.S. and the slow economic recovery in U.S. residential mortgage and housing markets." The case is In re Triad Guaranty Inc., Case No. 13-11452, U.S. Bankruptcy Court, District of Delaware.