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Multiple state and federal officials put the banks on notice that the $25 billion mortgage servicing settlement is just the first step in pursuing civil litigation and criminal prosecutions in connection with misdeeds before, during and after the financial crisis.
February 9 -
After a yearlong effort to reach a multistate settlement with the top five mortgage servicers, state attorneys general and the firms involved finally appear to be close to a deal. But even before it is signed, there are already questions about how it will be implemented and future litigation risks.
February 6
NEW YORK — A New York judge dismissed a suit against Bank of America Corp. (BAC), demanding the bank to take back mortgages sold to investors and alleged to breach wraps and warranties.
Investment firm Walnut Place LLC, which had bought mortgage-backed securities, sued Bank of America in February last year for unspecified damages it suffered because soured mortgages diminished the value of its investment.
But judge Barbara Kapnick of Supreme Court of the State of New York dismissed the suit Thursday, arguing that Walnut Place had not given the trustee of the securities, Bank of New York Mellon Corp. (BK), enough time to sort the matter out before suing Bank of America directly.
The dismissal is a significant win for Bank of America and BNY Mellon because it reaffirms the existing procedure for investor claims against banks in mortgage-backed securities related suits.
In addition, Walnut Place is a vocal opponent of Bank of America's $8.5 billion settlement reached last year to put similar suits behind it. Walnut Place has argued that Bank of America had reached a backroom deal with several big investors but left out thousands of others.
Walnut Place's lawyers didn't immediately return calls for comment. A Bank of America spokesman said the bank "is pleased with the court's ruling."
A spokesman for Bank of New York Mellon said, "We are pleased the court recognized that BNY Mellon acted properly in this matter. We believe that at all times we've acted in accordance with our duties as trustee."
At issue are mortgages made by Countrywide Financial, the mortgage firm Bank of America bought in 2008, just as the financial crisis was unfolding. Countrywide was an aggressive lender, and is creating considerable pain for Bank of America now because many mortgages originated by Countrywide have defaulted.
Many investors in mortgage-backed securities, including Walnut Place, have argued that Countrywide mortgages didn't default because borrowers fell on hard times during the recession, but because the mortgages were badly underwritten to begin with.
Walnut Place had invested about $990 million in various tranches of Countrywide mortgage-backed securities.
Still, investors suspecting shady underwriting have to go through the trustee rather than sue the bank directly, the court reiterated, adding that investors have to give the trustee sufficient time to investigate and resolve the claim.
