Bank of New York Mellon Corp. filed a court petition seeking approval of an $8.5 billion settlement with Bank of America Corp. over residential mortgage-securitization trusts.
BNY Mellon made the filing today in New York State Supreme Court in Manhattan as trustee of 530 residential mortgage-securitization trusts established from 2004 to 2008. Investors claimed that Countrywide Home Loans Inc. and other sellers breached agreements.
The agreement requires Bank of America, the parent of Countrywide, or Countrywide, or both, to pay $8.5 billion into the trusts, with amounts based on past and expected future losses associated with the loans in each.
“This settlement resolves a significant portion of the Countrywide private label securitization exposure and it allows us to put this matter behind us and focus on running our business,” Jerome Dubrowski, a spokesman for Bank of America, said in an interview.
Justice Barbara R. Kapnick of New York State Supreme Court in Manhattan today set a hearing on the settlement for Nov. 17.
Bank of New York Mellon is to give notice of the accord to investors in the mortgage-backed securities, mortgage companies Fannie Mae and Freddie Mac, ratings companies, bond insurers including Ambac Assurance Corp. and MBIA Insurance Corp., and underwriters including Deutsche Bank AG and Goldman Sachs Group Inc.
While individual agreements govern each securitization, all contain representations that the mortgage loans conform to underwriting guidelines and conform to their descriptions in investor disclosure documents, the petition says. The loan documents also include servicing obligations, it says.
“A substantial dispute has arisen concerning the sellers’ alleged breaches of representations and warranties in the governing agreements, and the master servicer’s alleged violations of prudent servicing obligations,” the petition says.
Institutional investors, whose current holdings are in the tens of billions of dollars, according to the filing, include Blackrock Financial Management Inc., Pacific Investment Management Company LLC, Federal Home Loan Mortgage Corp., Goldman Sachs Asset Management LP, Trust Co. of the West, and Teachers Insurance and Annuity Association of America.
The accord requires the master servicer, BAC Home Loans Servicing LP, formerly known as Countrywide Home Loans Servicing LP, to implement servicing improvements, according to the court papers. The improvements will provide a mechanism for BAC HLS to transfer high-risk loans to subservicers for more individual attention, the papers say.
The case is In the matter of the application of The Bank of New York Mellon, 651786/2011, New York state Supreme Court, New York County (Manhattan).