A day after New York's attorney general called Bank of America Corp's $8.5 billion mortgage-backed securities settlement unfair and inadequate, another state attorney general hinted he may also oppose the deal.

Delaware Attorney General Beau Biden plans on filing a motion to intervene next week, said an attorney from his office on Friday.

The attorney, Ian McConnel, said after a court hearing in the BofA case that, like the New York attorney general, his office had a duty to protect the marketplace. He also said that Delaware pension funds may be holding notes that are subject to the deal.

We're also very interested in understanding our own exposure to the notes, said McConnel.

In late June, BofA settled an eight-month dispute with outside investors who bought Countrywide Financial Corp mortgage bonds.

The investors -- including Pacific Investment Management Co, or PIMCO, and BlackRock Inc -- requested the bank repurchase toxic home loans that comprised a series of mortgage-backed securities.

BofA, the investors and securities trustee Bank of New York Mellon agreed to an $8.5 billion settlement that applies to all investors in nearly all Countrywide Financial-created mortgage bonds, but the deal must be approved by a New York court.

Supporters and potential objectors to the deal met Friday in New York State Supreme Court Justice Barbara Kapnick's courtroom in Manhattan to address the timing for investors to object and when they may be able to receive discovery.

The hearing came a day after New York Attorney General Eric Schneiderman said in court papers that the proposed settlement was both procedurally and substantively flawed.

Schneiderman also made claims against Bank of New York Mellon for breaching its fiduciary duty to investors in the trusts. A spokesman of the bank called the claims baseless and outrageous.

Schendierman and Biden, both Democrats, have ongoing investigations into the mortgage system. Earlier this year, Schneiderman requested information from at least seven banks related to their mortgage practices. He has also sought information from bond insurers and banks that served as trustees in mortgage securitization deals.

Schneiderman has also emerged as a key figure in settlement negotiations between a coalition of federal and state regulators and banks over their allegedly shoddy foreclosure practices. He has said that any settlement should not give the banks a broad release from future liability.

Meanwhile, Biden is investigating the Mortgage Electronic Registration Systems, an electronic-lien registry created by the mortgage banking industry, which has been accused of sloppy record keeping. MERS has said it's cooperating with the investigation.

(Reporting by Andrew Longstreth, editing by Bernard Orr)

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