Bank of America Corp.’s Countrywide unit won tentative final approval of a $500 million securities class-action settlement with investors in its devalued residential mortgage-backed securities.
U.S. District Judge Mariana Pfaelzer, at a hearing today in Los Angeles, set aside objections from the Federal Deposit Insurance Corp., which had argued as receiver of 19 failed banks that the accord disproportionately favors a subclass of the investors.
“I’m going to have to write something,” the judge said. “Nothing is final until the court has written an order.”
The settlement resolves claims that Countrywide, the largest U.S. mortgage lender when it was taken over by Bank of America in 2008, misled investors in offering documents about the quality of the home loans that were pooled for the securities. Many of the securities had been given the highest credit ratings and lost value when they were cut to junk during the collapse of the U.S. housing market.
“I think this a very, very significant case,” Pfaelzer told the lawyers who filed the first class-action cases against Countrywide as far as back 2007. “It was really a very enterprising thing for you to do.”
The $500 million deal is separate from an $8.5 billion settlement pending in state court in New York which resolves claims that Countrywide breached its contractual obligation to replace delinquent mortgages that were pooled for the securities.
The class-action settlement also resolves claims on behalf of investors whose securities weren’t held by plaintiffs in the first securities lawsuits and whose claims were dismissed as time-barred by Pfaelzer. The FDIC had objected that those so-called dismissed claims involved the vast majority of the securities and received too small a part of the total settlement.
Spencer Burkholz, a lead lawyer for the plaintiffs, said at the hearing that the $500 million settlement had been proposed by an independent mediator. The allocation of the money was based on the strengths and weaknesses of the “live” claims, the dismissed claims and appellate rights, he said.
“You don’t need to litigate every dismissed claim up to Supreme Court before you settle them,” Burkholz said.
Countrywide’s lawyer, Brian Pastuszenski, said his client was settling the lawsuit for business reasons and the settlement was by no means a concession that Countrywide had violated any laws.
The case is Maine State Retirement System v. Countrywide Financial Corp., 10-00302, U.S. District Court, Central District of California (Los Angeles).
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