Posted on August 5, 2011 by Neil Garfield
“Mr. Schneiderman’s contention that Bank of New York breached its duties to investors is significant because a trustee that agrees to oversee loan pools like those issued by Countrywide must abide by the rules governing the securities. Such rules require that lenders deliver to the trust complete and original mortgage documents for each loan in a pool, for example, and require that the trustee notify investors when such loan documents are missing.”
BANK STRATEGY OF FRIENDLY SETTLEMENTS STARTS TO UNRAVEL
$8.5 BILLION Mortgage Settlement Challenged
The New York attorney general is moving to block a proposed $8.5 billion settlement struck in June by Bank of New York Mellon and Bank of America over troubled loan pools issued by Countrywide. A lawsuit filed late Thursday accuses Bank of New York of fraud in its role as trustee overseeing the pools for investors.
In papers filed in New York State Supreme Court, lawyers for Eric T. Schneiderman, the attorney general, contended that Bank of New York misled investors about its conduct as overseer of the securities. The bank also breached its duties to investors by agreeing to the deal with Bank of America, according to the complaint, because the trustee is conflicted and “stands to receive direct financial benefits” as a result of the agreement.
Questioning the fairness of the deal, the attorney general’s lawsuit said that it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” that have been suffered by investors.
When the terms of the deal emerged, they appeared to be quite favorable to Bank of America. On June 29, when the deal was announced, Bank of America’s shares closed with a gain of almost 3 percent.
A spokesman for Mr. Schneiderman declined to comment. Jeep Bryant, a spokesman for Bank of New York Mellon, disputed the attorney general’s allegations, calling them “outrageous, baseless, unsupported by fact and law” and saying that the bank would fight them in court. “We are confident that we have fulfilled in all respects our responsibilities as trustee,” he said, adding that Mr. Schneiderman’s action fails to understand the “benefit the settlement would provide to investors.”
Bank of America purchased Countrywide in a distress sale in early 2008.
A judge overseeing the settlement will ultimately decide whether it should be approved. A court hearing on the proposed settlement was scheduled to take place Friday. Mr. Schneiderman’s lawsuit is likely to change the nature of those discussions.
As announced by Bank of New York, which is overseeing 530 mortgage pools issued by Countrywide, the deal would require Bank of America to pay $8.5 billion to investors holding the securities. The unpaid principal amount of the mortgages remaining in the pools totaled $174 billion. Lawyers representing 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock and Pimco, contended the deal was favorable.
But other investors in the Countrywide pools who were not part of the settlement negotiations between Bank of New York and Bank of America complained that the terms were inadequate. Among the criticisms made by a group of investors known as Walnut Place were that the negotiations were conducted in secret and that Bank of New York was conflicted as a negotiator because Bank of America agreed to cover all its costs and liabilities relating to the deal.
Mr. Schneiderman’s contention that Bank of New York breached its duties to investors is significant because a trustee that agrees to oversee loan pools like those issued by Countrywide must abide by the rules governing the securities. Such rules require that lenders deliver to the trust complete and original mortgage documents for each loan in a pool, for example, and require that the trustee notify investors when such loan documents are missing.
Bank of New York led investors in the Countrywide pools to believe that the lender had in fact delivered complete and adequate mortgage files for each loan as was required, the lawsuit said. The bank also misled investors by confirming that loan files relating to hundreds of thousands of mortgages were complete.
But the bank failed in these duties, the attorney general’s complaint said. After conducting a review of court records in the Bronx and Westchester County, Mr. Schneiderman’s investigators have determined that Bank of New York did not ensure that notes underlying properties were delivered properly to some trusts, according to the lawsuit. If loan documents were not delivered as required to the trustee, investors could recover the money they invested in the mortgages.
“Investors in the trusts were misled by Bank of New York Mellon into believing that Bank of New York Mellon would review the loan files for the mortgages securing their investment, and that any deficiencies would be cured,” the lawsuit said.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor,Mortgage, securities fraud Tagged: | Bank of America, bank of new york, bankruptcy, BOA,borrower, countrywide, disclosure, Eric T. Schneiderman, foreclosure, foreclosure defense,foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, Mellon, modification, quiet title,rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
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