FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities

In the State Supreme Court of New York, the Federal Deposit Insurance Corp. has fled an objection to Bank of America proposed $8.5 billion mortgage-backed securities settlement. The FDIC, which is the receiver for failed banks and owns the securities that the settlement is supposed to cover, says it doesn’t have sufficient information to assess the settlement.

Per the agreement, Bank of America would pay to resolve claims brought by investors of mortgage bonds from Countrywide Financial Corp., which the investment bank acquired in 2008 for $4 billion. Already, the claims related to the Countrywide MBS has cost Bank of America over $30 billion.

The $8.5 billion securities settlement with Bank of America is over $424 billion in mortgages from Countrywide and was reached with 22 institutional investors, including:

• BlackRock Inc.
• Pacific Investment Management Co. LLC • Federal Reserve bank of New York • MetLife Inc.

If approved, the terms of the MBS settlement will apply to other investors that weren’t part of the original deal. However, not all of these “other” investors are satisfied with the terms.

Walnut Place LLC I-XI, another party that represents other investors, recently submitted its petition accusing trustee Bank of New York Mellon of reaching an agreement that was really only on behalf of the 22 institutional investors. Also opposing the Bank of America MBS settlement is the Federal Housing Financing Agency, which is the overseer of Freddie Mac and Fannie Mae. The federal agency submitted its “conditional objection.”

Recently, six Federal Home Loan Banks (of Indianapolis, Boston, Pittsburgh, Chicago, Seattle, and San Francisco) also noted their opposition of the securities settlement. They believe that investors could be owed at least three times more than what the $8.5billion agreement is offering (under the proposed agreement, Bank of America would have to buyback 40% of the securities that defaulted.)

New York Attorney General Eric Schneiderman, who also doesn’t want the $8.5 billion settlement to go through, is accusing Bank of New York Mellon of securities fraud. He claims that not only did the trustee fail to act in the best interest of investors, but also it did not ensure that the MBS were set up in compliance with state law.

Also, in an unrelated claim, a US Bancorp unit requested that a court make Countrywide Financial buyback over 4,000 loans in a $1.75 billion mortgage pool to remedy breaches of contract over improper underwriting. In its securities fraud lawsuit, the unit claims that in 2005 when Countrywide sold the pool, it agreed to buyback all loans within 90 days of notification that there had been a material breach.

Our stockbroker fraud lawyers represent investors that have lost money because of broker misconduct and other acts of securities fraud.

Bank of America Settlement Faces Growing Challenges, New York Times, August 30, 2011
FDIC Objection Throws A Wrench Into Bank Of America’s $8.5 Billion Settlement, Forbes, August 29, 2011
Bank of America Settlement Faces Growing Challenges, NY Times, August 30, 2011
FDIC Petition (PDF)

Federal Deposition Insurance Corporation

New York Attorney General Eric Schneiderman

More Blog Posts:
Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011
Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010