The Bank of America has won a restraining order on Colonial Bank, an Alabama lender, barring it from selling USD1 billion in cash and loans. The case has highlighted the convoluted web of claims that has arisen out of the mortgage backed securities crisis of 2008.
Bank of Americas involvement in the lawsuit came through Ocala Funding, a vehicle that sold commercial paper backed with residential mortgages. BoA acted as custodian for the vehicles debt. Ocala was also sponsored by Taylor, Bean & Whitaker Morgage Corp, which received funding from Colonial.
Freddie Mac, the semi-nationalised mortgage company, bought mortgages from Ocala, and sent the money through Colonial, which was acting as the intermediary. The money never arrived at Ocala. BoA, worried about its exposure to losses through Ocala if Colonial collapses, won a temporary restraining order in a Miami court, forcing Colonial to freeze USD1billion is assets.
Taylor Bean has closed its lending business after being suspended by U.S. regulators and Freddie Mac. In turn, Ocala has now shut down, and Colonial has been accused by the Miami judge of being on the brink of collapse” and “suspected of criminal accounting.
Giles TurnerNews Editor