Nov. 6 (Bloomberg) -- Countrywide Financial Corp. mortgage- bond holders may form a group to challenge Bank of America Corp.'s plan to rework home loans to settle fraud complaints, a lawyer said.

Bank of America's Countrywide unit agreed with 14 states last month to cut loan amounts and interest rates for almost 400,000 borrowers, saving them $8.4 billion. The bank owns 12 percent of the loans, managing the rest for other companies and securities investors such as pension and hedge funds.

Grais & Ellsworth LLP, a New York-based law firm, wants to coordinate opposition to investors bearing the settlement's costs, said Bruce Boisture, a managing partner. About 25 companies have sought information about the firm's effort though aren't all ready to pursue legal or other action, he said yesterday, declining to name any.

``The bondholders have no reason to object to a loan modification program: The question is who's going to pay for it,'' Boisture said in a telephone interview.

Grais & Ellsworth ``and several investors are now organizing a coalition to contest Countrywide's plan through demands on the trustees and, if necessary, litigation,'' according to its Web site. The firm plans to hold a briefing for investors on the settlement on Nov. 11 in New York. Debtwire and American Banker have previously reported on its interest in opposing the accord.

``We're confident we've built a program that benefits both consumers and the investors,'' said Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America. The bank acquired Calabasas, California-based Countrywide, the largest U.S. home lender, in July.

Duping Borrowers

States including California, Illinois and Connecticut sued Countrywide this year for duping borrowers into taking loans they couldn't afford.

Bank of America could appease investors by modifying loans to meet the settlement's requirements only after buying the debt for its unpaid balances out of the pools backing their bonds, Boisture said. The bank said in a statement last month that ``some loan modifications will be subject to compliance with servicing contracts and some will require investor approval.''

Mortgage servicers have ramped up efforts to rework loans to cut foreclosures amid pressure from regulators and tumbling home prices. Last week, JPMorgan Chase & Co. announced a plan to rework mortgages for 400,000 families with $70 billion in loans in the next two years.

The plan will lead to changes only on loans owned by New York-based JPMorgan, including ones acquired with its purchases this year of Washington Mutual Inc. and Bear Stearns Cos., or ``with investor approvals,'' according to a statement.

One part of the Countrywide accord that several investors find ``interesting'' is that it allows for modifications of first mortgages without requiring changes to home equity loans on the same properties, potentially boosting the second loan's worth to the benefit of Bank of America, Boisture said.

``Two of the very large organizations that we've been in conversations with have, independently of one another, noted that aspect of the situation to us,'' he said.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: November 6, 2008 10:24 EST