2014 Government Regulations & Business Summit
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By David McLaughlin and Hugh Son
NEW YORK - Bank of America Corp.’s $8.5 billion settlement with mortgage-bond investors is set to be considered by a New York court two years after the lender struck the deal to resolve claims over home loans bundled into securities.
The settlement, scheduled to be considered by Justice Barbara Kapnick in State Supreme Court in Manhattan starting today, is part of an effort by CEO Brian Moynihan to clear up liabilities tied to the purchase of home lender Countrywide Financial in 2008.
Although the deal has the backing of an investor group that includes BlackRock Inc., it must overcome opposition from investors led by American International Group Inc. who argue Bank of America isn’t paying enough.
“The settlement is the centerpiece of the strategy to resolving Countrywide’s mortgage liability,” said Isaac Gradman, a mortgage-finance litigator at Perry, Johnson, Anderson, Miller & Moskowitz LLP in Santa Rosa, Calif. “It’s imperative they get this approved or there’s going to be a lot more pain down the road.”
The agreement, which has gone through two years of litigation since it was filed in court in June 2011, was scheduled to be considered at a May 30 hearing and may face another postponement today. An attorney for AIG said in a May 31 letter to the court that opponents didn’t have all the evidence they need to present their case.
For Moynihan, 53, approval of the settlement would resolve one of the biggest remaining uncertainties tied to Charlotte, N.C.-based Bank of America’s takeover of Countrywide, said Pri de Silva, senior banking analyst at CreditSights Inc.
The bank reached an $11.7 billion settlement with mortgage- finance company Fannie Mae in January and ended disputes with bond insurers including MBIA Inc., which settled for $1.7 billion with the lender in May. What remains for Moynihan are claims from private investors, and the 2011 accord deals with most of those, de Silva said.
“I’m sure he’ll be a pretty happy camper if it gets approved,” de Silva said. “This ends one chapter in the mortgage saga for Moynihan.”
If the settlement is rejected, Bank of America will either have to negotiate a costlier agreement with the investor group, or deal with individual bondholders in a way that “could drag out the process for years,” Betsy Graseck, a Morgan Stanley analyst, said in an April 23 research note.
Moynihan called the deal, which stems from Countrywide loans with an original principal balance of $424 billion, “a major milestone, in a March 27 interview on PBS television’s ‘‘Charlie Rose’’ program. He has booked more than $45 billion in costs to clean up the mortgage mess inherited from the purchase of Countrywide.
‘‘If you think about the pie, or the piece being this big, we’ve been chopping it down to less and less,’’ Moynihan said in the interview. ‘‘There’s a couple pieces of mortgage litigation left, but the lion’s share of it has gone through” the bank’s earnings, he said.
Unresolved demands that Bank of America repurchase mortgages dropped 39 percent to $17.1 billion as of March 31, driven by demands extinguished in the Fannie Mae deal, according to company filings.
Lawrence Grayson, a Bank of America spokesman, declined to comment about the court hearing on the settlement.