Bank of America Corp.’s Countrywide unit won preliminary court approval of a $34 million settlement of a lawsuit claiming the company overcharged for mortgage insurance.
U.S. District Judge Juan R. Sanchez in Philadelphia granted tentative approval to the agreement on Friday. A final hearing is scheduled for Aug. 23.
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Three Pennsylvania homeowners alleged in their 2007 lawsuit that Countrywide, once the biggest home lender, required homebuyers who took out mortgages with a down payment of less than 20 percent to obtain private mortgage insurance from a preselected group of providers.
Those providers agreed, in turn, to reinsure the policies with a Countrywide affiliate, Balboa Reinsurance Co. The homeowners alleged that Balboa collected more than $892 million in reinsurance premiums since 1999 and paid nothing in claims. Countrywide was accused of accepting a portion of the premiums and providing no services in return.
“Countrywide denies any wrongdoing and liability and is settling to avoid the cost and uncertainty of further litigation,” Shirley Norton, a spokeswoman for Charlotte, N.C.-based Bank of America, said in an e-mailed message.
Revised Settlement
The settlement, reached in November and revised last month, covers borrowers with residential mortgage loans that were taken out from Dec. 22, 2005, through Dec. 31, 2008, and reinsured by Balboa or its subsidiaries, according to court documents.
The U.S. Court of Appeals revived the suit in October 2009 after ruling that the district court had erred in dismissing the claims.
Bank of America, the biggest U.S. bank by assets, acquired Countrywide in July 2008 as the lender faced bankruptcy amid payment defaults and foreclosures tied to subprime mortgages. Bank of America booked a $2.2 billion net loss in 2010, fueled by writedowns at Countrywide and losses tied to repurchasing faulty mortgages.
The bank said last month that it will sell Balboa for at least $700 million to Australia’s QBE Insurance Group Ltd.
The case is Alston v. Countrywide Financial Corp., 07CV03508, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
