Saturday, October 22, 2011

Federal Judge Grabs Bank Of America's $8.5 Billion Settlement

Nathan Vardi, Forbes Staff
10/19/2011 @ 9:48PM

A federal judge ruled on Wednesday that the approval process for Bank of America’s $8.5 billion mortgage put-back settlement should be moved to federal court, making it more vulnerable to attack from investors and public officials.

William Pauley, a federal judge in Manhattan, said the case must be heard in federal court because it “implicates core federal interests in the integrity of nationally chartered banks and the vitality of the national securities markets.”

Bank of America in late June struck the $8.5 billion deal with 22 big institutions like BlackRock that had invested in Countrywide’s mortgage-backed securities and claimed that Bank of America had to make good on allegedly breached representations and warranties Countrywide made in connection with the quality of the underlying mortgage loans. Bank of New York Mellon, serving as the trustee for many of these deals, moved to get a New York state judge to rule it was acting reasonably in entering into the settlement on behalf of mortgage-bond investors.

But other investors in a relatively small number of these mortgage bonds sought more money by organizing as Walnut Place and intervened in the settlement. It is these investors that removed the case to federal court and for now have won a big battle by convincing Pauley it should remain there. The decision is a setback for Kathy Patrick and her big group of investors who hope to extend the Bank of America settlement to other big banks that underwrote soured mortgage-backed securities.

“This Court recognizes the procedural difficulty inherent in continuing this action in federal court,” Judge Pauley wrote. “But procedural complexity is not a ground for remanding an otherwise removable case.”

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