Bank of America Corp., responding to the attorney for a bondholder group that’s pushing the bank to repurchase soured home loans, demanded proof the lawyer is authorized to mount an attack on behalf of investors including units of BlackRock Inc. and MetLife Inc.
Wachtell, Lipton, Rosen & Katz’s Theodore N. Mirvis is among lawyers for Bank of America who said in a letter yesterday to Houston-based Gibbs & Bruns LLP’s Kathy Patrick that they want the names of individuals who approved signatures on a letter Patrick sent the Charlotte, North Carolina-based lender last month. They also want to know whether the board of directors for the bondholders Patrick said she represents approved signing of her correspondence.
“Troubling aspects of your letter strongly suggest that it was written for an improper purpose, or in furtherance of an ulterior agenda,” Bank of America’s attorneys wrote, saying they see no need to take action in response to Patrick’s letter.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Bank of America Chief Executive Officer Brian T. Moynihan said Oct. 19 the lender will “defend our shareholders” by disputing any unjustified demands for mortgage buybacks.
Bank of America’s lawyers said they couldn’t determine “whether any investigation of your allegations is warranted” unless Patrick proves her clients own as much of the bonds created by the bank’s Countrywide Financial Corp. unit as they claim. Patrick also needs to show on a deal-by-deal basis how the bank is falling short of its responsibilities in servicing the home loans in the 115 securitizations at issue, they said.
Moynihan, 51, said yesterday that he was surprised by the Oct. 19 letter from investors, which included the Federal Reserve Bank of New York.
Moynihan’s company has resolved other debt disputes with the investors, and he has called BlackRock CEO Larry Fink to discuss the mortgage buyback issue, he said.
Patrick declined to comment.
Jerry Dubrowski, a spokesman for Bank of America, confirmed the letter’s authenticity and declined to comment further.
Lawyers Brian E. Pastuszenski of Goodwin Procter LLP and Marc T.G. Dworsky of Munger, Tolles & Olson LLP also signed the yesterday’s letter to Patrick, which was reported earlier today by the New York Times.
‘War of Attrition’
Banks have been waging a “war of attrition” in seeking to dissuade bondholders from invoking their contractual rights to force repurchases of certain bad loans, David Grais, a lawyer at Grais & Ellsworth LLP, said on Oct. 27 at a conference in New York. Grais, who organized the meeting to discuss investors’ options, represents bondholders suing banks including Bank of America and New York-based JPMorgan Chase & Co.
Owners of the bonds Patrick’s clients now hold have suffered almost $8 billion of losses on the underlying mortgages, and more than $22 billion of the remaining loans are at least 30 days late, according to data compiled by Bloomberg. The underlying loan balances, originally $105 billion, stand at $47 billion after defaults, loan refinancings and home sales.
Brian Beades, a spokesman for New York-based BlackRock, declined to comment. The company, the world’s largest money manager, said Nov. 3 that Bank of America, which own a 34 percent stake in BlackRock, plans to sell at least 34.5 million of those shares.
Bank of America’s lawyers also wrote that they were “taken aback” that the investors were attacking Countrywide “for not foreclosing on homeowners quickly enough and for making loan modifications that may keep borrowers in their homes.”
Patrick has said her clients are concerned processing mistakes and insufficient staffing at Bank of America are unnecessarily delaying foreclosures, though her clients aren’t opposed to loans being reworked for “deserving borrowers.”
The investors are also challenging the way the bank handles loans it discovers didn’t match Countrywide’s representations. If the lender uncovers such discrepancies while working with homeowners on mortgage modifications, it should repurchase the debt from bondholders, Patrick’s letter said.
Bank of America may also be dragging out the time it takes to deal with bad home loans in order to boost its income from servicing the mortgages, according to the letter.
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