Tallying the Costs of Bank of America’s Countrywide Nightmare

If only there were mulligans on ill-advised Wall Street takeovers.

When Bank of America bought Countrywide Financial, the subprime lending specialist, it initially paid $4 billion.

Some analysts have pegged the true financial toll — including write-downs, legal expenses and settlements — at upward of $40 billion.

The costs threatened to widen further on Wednesday, when federal prosecutors in New York sued Bank of America over a mortgage program it inherited from Countywide. The Justice Department seeks to collect more than $1 billion in penalties over the program, known as “the hustle,” which prosecutors say churned out fraudulent loans at a rapid pace.

The final cost of that suit could total even more — $3 billion. The Justice Department, seeking compensation for bad loans that Countrywide steered to government-backed mortgage agencies Fannie Mae and Freddie Mac, filed the case under a law that could provide for triple the damages suffered by taxpayers. Fannie and Freddie guaranteed the mortgages and later suffered steep losses.

A Bank of America spokesman, Lawrence Grayson, declined to comment. On Wednesday, when the Justice Department released its complaint, Mr. Grayson cast doubt on the government’s claims.

“Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false,” he said in a statement. “At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.” Bank of America also notes that it is turning around its mortgage business, after whittling down the subprime portfolio and focusing on stronger lending standards.

Whatever the merits of the case, it further reinforced the notion that Bank of America was better off without Countrywide.

Once the nation’s largest mortgage lender, Countrywide pioneered lending programs that aggressively reached into minority and low-income neighborhoods. But by early 2008, as the mortgage bubble was bursting, the firm was hobbled by soured loans and it needed a buyer.

Kenneth D. Lewis, then Bank of America’s chief, saw an opportunity to seize the company for a bargain price. But that was only the first expense that led to a flood of red ink.

“Obviously, there aren’t many days when I get up and think positively about the Countrywide transaction,” Brian Moynihan, Mr. Lewis’s successor, once said.

In financial reports, Bank of America does not break out losses and write-downs sustained by its own mortgage division versus Countrywide, so it is difficult to pinpoint an exact cost of the Countrywide deal. But some of the enormous costs of Countrywide include these bills:

• January 2008: Bank of America agreed to pay $4 billion for Countrywide.
• June 2010: The government fines start relatively small, with the Federal Trade Commission leveling a $110 million penalty against two Countrywide mortgage servicing companies accused of overcharging “cash-strapped borrowers.”
• August 2010: Countrywide agrees to pay $600 million to settle a lawsuit from shareholders, including New York pension funds that claimed the lender misled them about its health.
• October 2010: Bank of America pays $20 million to cover the former Countrywide chief executive Angelo Mozilo’s $67.5 million civil fraud settlement with the Securities and Exchange Commission.
• January 2011: Bank of America pays more than $2.5 billion to buy back troubled mortgages and resolve related claims from Fannie and Freddie.
• April 2011: The spending spree continues with a $1.6 billion payout to Assured Guarantee, which insured the toxic mortgage bonds sold to investors.
• May 2011: The Justice Department collects a $20 million fine after accusing Countrywide of wrongly foreclosing on more than 150 active duty members of the military.
• June 2011: Bank of America reached a preliminary $ 8.5 billion deal to settle claims by investors who purchased Countrywide mortgage securities that soured when the housing bubble burst.
• December 2011: Bank of America pays $335 million to settle claims from the Justice Department that Countrywide carried out a “widespread pattern or practice of discrimination against qualified African-American and Hispanic borrowers.”
• February 2012: The bank strikes a $1 billion settlement with the federal government over Countrywide loans awarded to “unqualified” borrowers and insured by the Federal Housing Administration.
• February 2012: The bank contributes $11.8 billion to a settlement following a nationwide investigation of foreclosure abuses at five big firms. Some of the improper acts are said to have occurred at Countrywide.