BofA Mortgage-Bond Investors Hold $84 Billion Connected to Buyback Dispute

A bondholder group seeking reimbursements from Bank of America Corp. over soured home-loan securities said the amount of debt it holds grew to $84 billion after more investors joined the dispute.

The number climbed from about $46 billion in October, according to the group’s lawyer. The investors have had “enough progress” in negotiations with Bank of America and Bank of New York Mellon Corp., which acts as trustee of the debt, to warrant continued talks, Kathy Patrick, a partner at Houston-based Gibbs & Bruns LLP, said today in a telephone interview.

Bank of America said Feb. 25 there were 225 mortgage deals in dispute, up from 115 in October. It didn’t provide a dollar value for the securities. Investors challenging the bank include Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October.

The bank is seeking to limit losses on mortgages originated by Countrywide Financial Corp., which the Charlotte, North Carolina-based lender purchased in 2008. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan Chase & Co. bond analysts said in an October report.

The “careful approach” of Patrick’s investor group doesn’t mean it will accept less than it’s entitled to, she said, dismissing the idea that her clients will limit their settlement goals because of their other business dealings with Bank of America.

Mortgage Trust’s Role

Growing membership is a “vote of confidence” in the group’s seriousness, she said. The investors have only considered a settlement that pays through the mortgage trust, a channel that would serve even the bondholders Patrick doesn’t represent, she said.

Bill Frey, head of Greenwich, Connecticut-based Greenwich Financial Services LLC, which also advises mortgage bondholders seeking buybacks, said many investors he has spoken to “are not expecting a terribly aggressive settlement,” from Patrick’s clients.

“Our clients will let any results they achieve speak for themselves,” Patrick said.

In October, Bank of America said the dispute with Patrick’s clients covered bonds with a face value of about $46 billion and original balances of $105 billion. The original balance of the securities now involved totals $182 billion and the group has grown from eight to more than 20 institutions, Patrick said. New members include insurers, investment managers and banks, she said.

BofA Questions Validity

“The amount of unpaid principal balance doesn’t reflect what ultimately might be paid if, in fact, there were valid claims,” said Jerry Dubrowski, a Bank of America spokesman. “At this point we have a number of questions about the validity of the assertions, including whether the investors are qualified to bring claims.”

Kevin Heine, a spokesman for BNY Mellon, declined to comment.

David Grais, a New York-based lawyer, on Feb. 23 sued Bank of America on behalf of investors holding more than $700 million of mortgage securities. BNY Mellon, the debt’s trustee, refused to sue Bank of America after the lender declined to buy back loans the investors deemed faulty, according to the complaint.

“This is the strategy for investors who are serious,” Grais said Feb. 24 in a telephone interview. “This is the best strategy for investors who actually want teeth in their dogs.”

The plaintiffs in his case are a group of limited liability companies with variations of the name Walnut Place. Grais declined to identify the investors behind the companies.

BNY Mellon, which was named as a nominal defendant in that case, has “a limited role that is distinct from the seller and the servicer and contractually limited by the pooling and servicing agreements,” Heine said.

“We have been fulfilling our obligations under these agreements,” he said.

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

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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