Bank of America Corp.'s proposed $500 million settlement with a class of investors in residential mortgage-backed securities issued by its Countrywide Financial unit needs more explanation before it can be approved, a judge said.

U.S. District Judge Mariana Pfaelzer, at a hearing yesterday in Los Angeles for preliminary approval of the settlement, said she couldn't tell whether the proposed plan for allocating the proceeds was fair, just and reasonable.

"You have to do some more work," she told Spencer Burkholz, a lawyer representing the plaintiffs.

Bank of America announced April 17 that it had reached a settlement with investors in three class actions who alleged that Countrywide lied to them in its offering documents for the securities. The oldest of the three cases, which are combined before Pfaelzer, dates back to November 2007.

At yesterday's hearing, Pfaelzer said she was concerned about how the $500 million would be distributed between the securities' various tranches, which had suffered different amounts of damage when the market of mortgage-backed securities imploded with the collapse of the U.S. housing market in 2007.

"It is not perfectly clear to me how this is going to work out in the plan of the allocation," Pfaelzer said. "Who would get the bulk of the money?"

The judge, in a series of rulings in 2011, narrowed the securities over which the investors could sue from more than $350 billion to $2.6 billion and excluded Charlotte, North Carolina-based Bank of America from the case as successor of Countrywide. The claims of the investors who filed the first suit in 2007 were litigated in state court and hadn't been dismissed.

Under the proposed settlement, $325 million will go to the plaintiffs who have live, un-dismissed claims, $125 million will go to investors who sought to be class representatives of tranches that were dismissed and $50 million will go to the remaining investors in Countrywide mortgage-backed securities.

"This was extremely hard-fought," Burkholz told the judge. "At many times, it looked like the settlement was not going to happen."

Pfaelzer told Burkholz that, before she could give preliminary approval, he had to provide her with a proposed letter to the lawyers for other mortgage-backed securities investors, including American International Group Inc. and the Federal Housing Finance Agency, who have filed separate lawsuits against Countrywide.

The judge said she was concerned the plaintiffs in those cases would lose their right to proceed with claims if they didn't exclude themselves from the class-action settlement.

Brian Pastuszenski, a lawyer for Countrywide, said the company agreed to the settlement because it made sense from a business perspective and that it wasn't admitting any wrongdoing.

The case is Maine State Retirement System v. Countrywide Financial Corp., 10-cv-00302, U.S. District Court, Central District of California (Los Angeles.)

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