Nevada sues to void Bank of America loan deal

Bank of America Corp's legal troubles worsened Tuesday after Nevada's attorney general sued to undo a broad 2008 loan-modification settlement over predatory lending by its Countrywide unit.

In a complaint filed Tuesday in U.S. District Court in Reno, Attorney General Catherine Cortez Masto seeks to void the deal reached in October 2008 so the state can sue the nation's largest bank over allegations of deceptive lending, marketing and loan servicing practices.

Masto alleges that Bank of America raised interest rates on troubled borrowers when modifying loans though it promised to lower them.

The bank also failed to provide loan modification to qualified homeowners as required under the deal and improperly foreclosed even as modification requests were pending, the filing said.

"After two and a half years of lost implementation ... the state can no longer get the benefit of its original settlement with defendants," Masto wrote.

The complaint alleged Countrywide, a Bank of America subsidiary, also breached its settlement with Nevada over predatory lending by failing to provide loan modifications to eligible borrowers.

Masto also alleged Countrywide failed to make decisions on loan modifications, on average, within 60 days of receiving requests from Nevada consumers and proceeded with foreclosures while modification requests were pending.

Bank of America officials denied all of Masto's claims.

"While we are continuing to review the attorney general's amendment, we disagree that there has been any material breach of the consent degree and will continue to vigorously defend this action," the bank said in a statement late Tuesday.

Bank officials said they think "the best way to get the housing market going again in every state is a global settlement that addresses these issues fairly."

The lawsuit represents the latest legal challenge for Bank of America, which has been overwhelmed by complaints of mortgage fraud and predatory lending practices related to its $4 billion acquisition of Countrywide in 2008.

During the height of the mortgage boom, Countrywide originated 262,622 loans in Nevada, making it one of the largest lenders in the state.

Masto said her office started receiving complaints shortly after the settlement was reached.

What she found was that Bank of America had "materially and almost immediately violated" the terms of the settlement, according to the 48-page complaint.

"After acquiring Countrywide, Bank of America engaged in new, repeated, and systematic violations of Nevada law," the complaint said.

Masto's efforts to terminate the 2008 deal could harm any settlement of a 50-state investigation over improper foreclosure practices.

Those negotiations have stalled over whether the deal would allow state regulators to bring future lawsuits or continue investigating questionable mortgage lending practices.

Masto and attorneys general Martha Coakley in Massachusetts, Eric Schneiderman of New York and Beau Biden of Delaware have declined to endorse a proposed settlement.

"I am not going to agree to a settlement that would grant banks broad relief that would threaten our investigations," Masto said in a recent phone interview.

The companies involved in the nationwide settlement talks are Bank of America, JP Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co and Ally Financial Inc.

Shares of Bank of America lost 27 cents, 3.22 percent, to close Tuesday at $8.12 on heavy volume of 297.2 million shares traded on the New York Stock Exchange.

The news ended a brief rally that began after billionaire Warren Buffett's company took a $5 billion stake in the troubled bank.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.