New York Probes Bank of America's $8.5 Billion Mortgage Pact

Wednesday, 13 Jul 2011 11:42 AM

 

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New York's attorney general is investigating Bank of America Corp.'s $8.5 billion settlement with investors over losses in mortgage-backed securities, and has sought data from 20 institutional investors that agreed to the accord.

In letters to the firms, Attorney General Eric Schneiderman requested the names of various clients — including pension funds, government authorities and charities affiliated with the state — that invested in securities issued by the 530 mortgage securitization trusts covered in the accord. He also sought the par and current market values of the clients' securities.

The letters are dated July 7, and were sent in connection with the attorney general's "ongoing investigation" into the securitization of residential mortgages. Schneiderman requested that the information be provided by July 14.

Among the investors were BlackRock Inc., MetLife Inc. and Allianz SE's Pacific Investment Management Co. Of the 22 investors that agreed to the accord, only the Federal Reserve Bank of New York and the Federal Home Loan Banks were not sent letters by Schneiderman.

Schneiderman's office and representatives of Bank of America and BlackRock declined to comment. A MetLife spokesman said that insurer has not seen a letter from Schneiderman. Pimco did not immediately respond to a request for comment.

Reuters obtained copies of the letters Tuesday.

Various attorneys general are scrutinizing the causes of and fallout from excess in mortgage securitizations, a key driver of the recent housing and financial crises.

Regulators including all 50 state attorneys general are also working on an expected multi-billion dollar settlement with large mortgage servicers over foreclosure practices.

 

IS IT FAIR?

The $8.5 billion settlement announced June 29 was part of roughly $20 billion of charges that Bank of America hopes will resolve much of its legal liability from its 2008 purchase of mortgage lender Countrywide Financial Corp.

But the accord has drawn challenges from some Countrywide mortgage securities investors who question whether the accord is fair, or may provide some investors with windfalls.

The settlement requires approval by New York State Supreme Court Justice Barbara Kapnick in Manhattan.

In court filings this week, the institutional investors rejected various criticisms by a group of pension funds and 11 companies sharing the name Walnut Place, which own Countrywide securities in some trusts covered by the accord.

The institutional investors called "ludicrous" a claim that they engineered a gentle settlement to help Bank of America, which many of them regularly do business with in other areas.

They also said that to exclude some trusts from the accord would deprive investors in those trusts of other benefits, including servicing improvements that could lead to fewer foreclosures and higher values for their mortgage securities.

On Monday, Congressman Brad Miller, a Democrat and member of the House Financial Services Committee, questioned whether taxpayers might end up on the hook for excessive losses through the ownership by government-run Fannie Mae and Freddie Mac of securities covered in the settlement.

Bank of New York Mellon Corp. is the trustee for the 530 trusts, and has called the settlement "reasonable." A spokesman for that bank also declined to comment.

The case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.

© 2014 Thomson/Reuters. All rights reserved.

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