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

Fri Jan 31, 2014 8:17pm EST
 
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By Karen Freifeld

NEW YORK (Reuters) - A New York state judge on Friday approved most of Bank of America Corp's (BAC.N: Quote) $8.5 billion settlement with investors over toxic mortgage securities, but left a caveat that could complicate the bank's efforts to implement the deal.

Justice Barbara Kapnick ruled that Bank of New York Mellon BK.N, the trustee representing investors, had acted mostly in good faith in agreeing to the settlement. But she withheld her approval for one part of the settlement where she said the trustee had not acted reasonably.

A spokesman for Bank of America said the bank did not expect that Kapnick's exclusion would hold up the accord.

But a lawyer for American International Group Inc (AIG.N: Quote), which led investors that opposed the settlement, said the insurer foresees a long legal fight ahead.

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 before the U.S. housing crisis. The investors said Countrywide misrepresented the quality of the underlying home mortgages, which went sour in the 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 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 big enough.   Continued...

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