Mortgage Investors May Be Owed Three Times More in BofA Deal

Investors in Countrywide Financial Corp. mortgage bonds may be owed three times or more of what they’re being offered in an $8.5 billion settlement with Bank of America Corp. (BAC), a group of Federal Home Loan Banks said.

The home loan banks, which invested more than $8.8 billion in the mortgage-backed securities, are trying to get access to more information about the deal by joining the case and said a reasonable settlement could range from $22 billion to $27.5 billion or more.

Expert reports used as legal support for the settlement “raise more questions than they answer,” the home loan banks said in a court filing today in New York State Supreme Court, where a judge will consider approving the settlement later this year.

Under the agreement, Bank of America will pay $8.5 billion to resolve claims from investors in 530 residential mortgage securitization trusts. Bank of America acquired Countrywide in 2008. The deal was reached with 22 institutional investors, including BlackRock Inc., and the trustee for the securities, and would apply to other investors in the trusts.

Countrywide Disclosures

The Federal Home Loan Banks of Boston, Chicago, Indianapolis, Pittsburgh, San Francisco and Seattle are seeking to intervene in the case and may oppose the settlement, according to court papers. The companies are among the 12 government-chartered FHLBs, which collectively raise cash in the bond market to lend to the banks and insurers that own them. Several of the FHLBs have outstanding suits over disclosures made by Countrywide that could continue under the terms of the broader settlement.

The home loan banks criticized assumptions in an expert report completed for Bank of New York Mellon Corp. (BK), the trustee for the mortgage-bond trusts. The report’s estimate of a reasonable settlement would rise to $22 billion to $27.5 billion if it assumed that Bank of America would have to buy back all loans in default and which breached representations and warranties, instead of 40 percent, the home loan banks said in their court filing.

“Modifying any of his other three assumptions would cause that range to rise much more,” the banks said about the expert.

Due Diligence

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said Bank of New York has “outlined at length the extensive due diligence” it engaged in before entering into the settlement, including the expert reports.

“We look forward to the court determining on the merits whether the trustee acted appropriately in entering into the settlement,” Grayson said in an e-mailed statement. “We believe that it did.”

Kevin Heine, a spokesman for Bank of New York, declined comment.

The case is In the matter of Bank of New York Mellon, 651786/2011, New York state Supreme Court (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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