Bank of America Creates Foreclosure, Discontinued Loans Unit

America’s largest bank announced recently it will be creating a separate unit to deal solely with foreclosures and discontinued loan products, the Associated Press reported.

Bank of America (NYSE:BAC) said its Legacy Asset Servicing unit will be tasked with resolving issues involving faulty mortgage paperwork. BofA, and a number of other banks, was embroiled in an industry-wide scandal involving the use of “robo-signers” – bank employees  and contractors who rubber-signed foreclosure documents without checking their veracity.

Because of the robo-signing allegations, BofA suspended foreclosures in all 50 states last October and resumed them in December after a review of procedures.

The Legacy Asset unit will be led by Terry Laughlin, the bank announced. The unit will also be responsible for mortgage modifications, and it will also handle buyback claims by investors who bought bad home loans.

The creation of the Legacy unit is among the new changes instituted in place by BofA CEO Brian Moynihan. Moynihan assumed leadership in the bank in January 2010.

Bank of America’s other unit – Home Loans, will continue to be in charge with handling new loans and the collection of monthly payments on up-to-date loans. That unit will continue to be led by Barbara Desoer.

In the company’s 2010 financial report, the Home Loans unit recorded a lost of $8.92 billion largely related to bad loans associated with Countrywide Financial Corp. – a company acquired by BofA  in 2008.

Countrywide found itself in the middle of the mortgage crisis in 2007 after it became apparent that many of its borrowers did not have the capacity to repay mortgages. Countrywide’s mortgages required no downpayments or  proof of income and were tied to adjustable rates that quickly made monthly payments unaffordable.

BofA is also beset with other problems. In its filing with the Securities and Exchange Commission, it said it, along with Countrywide and its Merrill Lynch unit are named as defendants in lawsuits related to the sales of more than $375 billion in mortgage-backed securities.

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