BofA One Step Closer to Swallowing $8.5 bln Countrywide Pill

Bank of America (BoA) came a steprncloser today to ending litigation that has plagued it since it boughtrnCountrywide Mortgage in 2008.  A New YorkrnState judge approved most of an $8.5 billion settlement agreement between thernbank and nearly two dozen mortgage securities investors which had itself beenrnthe subject of litigation since it was first reached over two years ago. </p

The original suit involved claimsrnthat over 500 securities backed by mortgages originated by Countrywide beforernit was acquired by BoA were not of the quality promised in their prospectuses.  Investors in the securities included Blackrock,rnInc., Pacific Investment Management Company (PIMCO) and American International Group (AIG).  </p

Bank of New York Mellon Corp wasrntrustee for the investors and filed a petition with the courts in June 2011rnseeking approval of the settlement. rnHowever a dozen investors led by AIG objected on the basis that thernsettlement resolved the claims for only pennies on the dollar and that therntrustee did not push aggressively enough for more money from BoA and had shirkedrnits duties in a process; making claims of conflicts of interest.  The AIG group maintained that investor lossesrnfrom the securities totaled more than $100 billion. </p

New York State Supreme Court JusticernBarbara Kapnick presided over a nine week hearing regarding the settlementrnafter Bank of New York petitioned her to approve it under New York Article 77rnwhich allows trustees to seek such approval for their actions.  The bank said the settlement would saverninvestors years of uncertain and costly litigation.</p

In approving the agreement the judgernsaid the trustee “did not abuse its discretion in entering into the settlementrnagreement and did not act in bad faith or outside the bounds of reasonablernjudgment.” However, she qualified her ruling by allowing some loan modificationrnclaims by investors to go forward and said in those instances, the trusteernsettled the claims “without investigating their potential worth or strength.”</p

In a statement issued after the ruling AIG seized onrnthe judges exceptions, saying in part, “We are pleased that the court refusedrnto approve the proposed settlement in its entirety and found that the trusteernacted unreasonably in agreeing to compromise billions of dollars of investorrnclaims. We respectfully disagree with the other aspects of the court’s ruling,rnwhich are not supported by the record and which set a dangerous precedent thatrncould eliminate important protections for investors. This case is very far fromrnover because the settlement will not take effect until a variety of potentialrnpost-trial motions and appeals are resolved.”</p

Kapnick delayed the entry of thernruling until Feb. 7.

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