Bank of America Mortgage Woes Continue

NEW YORK (TheStreet) -- Bank of America(BAC)'s exposure to lawsuits over its mortgage securitization practices continues to worry analysts and investors who follow the bank.

Potentially hundreds of billions worth of mortgage bonds packaged and sold by Bank of America and other institutions are expected to face challenges from large investors sitting on losses related to the bonds. The investors, which include Fannie Mae(FNMA.OB), Freddie Mac(FMCC.OB), BlackRock(BLK), Pacific Investment Management Co. , monoline and private insurers, among others, are trying to put back the mortgages to the banks, arguing they are invalid due to documentation or other technical issues.

Richard Bove, analyst at Rochdale Securities, believes the issue will continue for the next four to five years.

"It's going to be like a tobacco or an asbestos situation," Bove says, arguing court battles will continue evolving for some time at plaintiffs test courts to find successful strategies and Bank of America and other institutions work to find off the evolving challenges.

Moody's Investors Service added to the chorus of concern with a report it published Monday on a recent legal case that has been in the news, "Kemp v Countrywide Home Loans." Bank of America acquired Countrywide in 2008, and many of the difficulties it faces are related to home loans Countrywide originated.

According to the Moody's note, the Kemp case pertains to a May 2008 bankruptcy filing in which Bank of America/Countrywide, acting as a mortgage servicer, tried to foreclose on a mortgage for which Bank of New York Mellon (BK)was the trustee.

Testimony by a Bank of America mortgage servicing employee and statements and a local Bank of America indicate that the mortgage note in question was not properly delivered to the securitization trustee, Moody's states, arguing "the case will encourage other mortgage borrowers as well as investors in Countrywide securitizations to challenge BofA."

Bank of America spokesman Jerry Dubrowski says the Bank of America servicing employee's testimony "was mistaken." He added, "she was asked to testify about the authenticity of the loan documents and not to serve as an expert on the post-closing document deliveries and practices, and during the hearing those questions started to come her way and she misspoke and she tried later to say she was unwilling to make these broad statements, but what got picked up predominantly was that this was the practice of Countrywide, and it's not," he says.