Saturday, November 22, 2008

Investors In Countrywide MBS Cry Foul In Bank Of America $8.4B Loan Modification Settlement With State AGs

The Wall Street Journal reports:

  • Bank of America Corp.'s decision to embark on an $8.4 billion home-loan-modification program to settle charges brought by state attorneys general against Countrywide Financial Corp. was hailed as a milestone when the deal was announced this fall. But apparently nobody talked to one group that will shoulder much of the settlement's costs: investors who hold securities backed by Countrywide mortgages.

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  • Bank of America didn't seek investor approval before agreeing to the settlement "because the design of the program was based in large part on the delegated authority" in the contracts, [a Bank of America spokesman said].

  • But some investors believe they should have been contacted first. [...] Other investors said Bank of America is moving much of the cost of the settlement to investors when it should be paying those costs itself. [... T]hey said that many of these loans violated representations and warranties made when the mortgages were packaged into securities. As a result, they said, Bank of America should repurchase the loans before modifying them.

  • "This is literally an attempt to settle a dispute with state attorneys general on predatory lending claims with someone else's money," said one money manager. "In 10-plus years in the market, I've never seen anything as outrageous as this."

For more, see Investors Hit BofA Loan Modifications.

Go here for other related posts on mortgage servicing issues. MortgageServicingIssuesAlpha

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