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AIG Says BofA Mortgage Bond Deal Should Be Rejected

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May 3 (Bloomberg) -- Bank of America Corp.’s proposed $8.5 billion settlement with mortgage-bond investors should be rejected by a New York court, American International Group Inc. said.

The settlement amount is “unreasonably and unjustifiably small,” a group of other investors led by AIG said in a filing today in New York State Supreme Court in Manhattan. “The resulting settlement is a pennies-on-the dollar bargain for BofA that woefully undercompensates” investors, they said.

The settlement would resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Bank of America, based in Charlotte, North Carolina, acquired the home lender in 2008. The trustee, Bank of New York Mellon Corp., will seek court approval for the deal at a hearing set to begin May 30.

Separately, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said it was withdrawing its “conditional objection” in the case and won’t present evidence opposing the settlement.

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

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

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

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