BofA MBS pact faulted by Fannie/Freddie, borrowers
The regulator for Fannie Mae and Freddie Mac, as well as dozens of investors, lodged objections to Bank of America Corp's proposed $8.5 billion mortgage-backed securities settlement, while a group of borrowers separately sued to block the accord.
Challenges by the Federal Housing Finance Agency and others were filed as investors who bought securities covered in the settlement faced a Tuesday deadline over whether to intervene in the case, which is overseen by New York State Supreme Court Justice Barbara Kapnick in Manhattan.
Some of the challenges were filed simultaneously in federal court, where some of the objectors hope to move the case.
The settlement covers 530 mortgage pools from the former Countrywide Financial Corp, which was the nation's largest mortgage lender before Bank of America bought it in 2008.
Bank of New York Mellon Corp, the trustee handling the 530 trusts with $174 billion of unpaid principal balances, had negotiated the settlement with 22 institutional investors including the Federal Reserve Bank of New York, BlackRock Inc and Allianz SE's Pimco.
But some other investors say the payout is too low, or they lack enough information to know whether the accord is fair.
American International Group Inc, the insurer is suing Bank of America for $10 billion in a separate MBS case, has also objected to the accord.
Others objecting include the Federal Deposit Insurance Corp, attorneys general of New York and Delaware, and dozens of banks, insurers, investment funds and pension funds.
Lawrence Grayson, a Bank of America, declined to comment. A Bank of New York Mellon spokesman did not immediately respond to a request for comment.
FHFA WEIGHS IN
Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.
US Bancorp, trustee for a $1.75 billion Countrywide mortgage pool, this week separately sued Bank of America to buy back the underlying loans. [ID:nN1E77T0PO]
In its court filing, the FHFA called it a positive that the settlement calls for improving loan servicing and fixing deficient documentation, and said the support of many large market participants is encouraging.
Still, the FHFA said it lacks enough information about the accord, and wants to position itself to voice a substantive objection should a now unforeseen issue arise that hurts Fannie Mae and Freddie Mac.
The mortgage financiers remain crucial to the housing market, having in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress in June shows.
The borrowers in the new lawsuit claim their mortgages are contained in the 530 trusts, and they have received default notices leaving them at high risk of foreclosure.
They asked a federal judge to issue an injunction that blocks the settlement, and forces Bank of America to adopt and follow servicing policies that are higher than current industry standards. They seek class-action status on behalf of Countrywide borrowers from 2004 to 2008 whose loans are in the trusts and being serviced by Bank of America.
The state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011. The federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988. The borrower case is Iesu et al v. The Bank of New York Mellon et al, U.S. District Court, Southern District of New York, No. 11-06078.
(Reporting by Jonathan Stempel; Additional reporting by Joe Rauch in Charlotte, N.C.; editing by Carol Bishopric)
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