Court approves Bank of America's $8.5 billion mortgage settlement

Fri Jan 31, 2014 4:12pm EST
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By Karen Freifeld

NEW YORK (Reuters) - A New York state judge on Friday approved Bank of America Corp's (BAC.N: Quote) $8.5 billion settlement with investors in mortgage securities, which would resolve much of the bank's liability from its acquisition of Countrywide Financial Corp during the financial crisis.

Justice Barbara Kapnick ruled that Bank of New York Mellon (BK.N: Quote), the trustee overseeing the securities, had mostly acted reasonably and in good faith in determining that the settlement was in the best interests of the investors.

American International Group Inc (AIG.N: Quote), which led opposition to the settlement, plans to appeal aspects of the decision, a lawyer for the insurer said.

Bank of America agreed to the settlement in June 2011 to resolve the claims of investors who had bought $174 billion of mortgage-backed securities issued by Countrywide. The investors said Countrywide misrepresented the quality of the underlying home mortgages, which went sour in the housing crisis.

Countrywide, based in Calabasas, California, was the biggest home mortgage lender in the United States until the housing market collapsed, specializing in so-called subprime loans, most of which it packaged into securities and resold to investors. It was bought by Bank of America in 2008.

A group of 22 investors supported the settlement, including institutions such as BlackRock Inc (BLK.N: Quote), MetLife Inc (MET.N: Quote) and Allianz SE's (ALVG.DE: Quote) Pacific Investment Management Co.

But investors led by AIG (AIG.N: Quote) objected, arguing that they were cut out of negotiations and that there was no evidence the settlement was adequate.

The objectors said Bank of New York Mellon was protecting its own interests in supporting the settlement, saying that it did business with Bank of America. The objectors also criticized the Bank of New York Mellon for failing to review loan files to identify defective loans in the securities.   Continued...

A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake