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

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...

I guarantee you there are a few that know exactly what it means.

Basically, Bank of America thought they were going to get off easy in a sweetheart State of New York settlement deal.
A Federal judge didn’t see it that way as this involves a Federally charted bank subject to Federal oversight.

If you don’t understand that then watch BofA stock price movements.

“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.”

When you see ‘mortgage-bond investors’ read that as ‘derivatives’ which BofA sold (and many other banks) to investors which ended up non-performing (failed) mainly because BofA used one house mortgage to back 30 derivative bets. Mortgage payments are missed to the point of foreclosure and all 30 bets go underwater and the big investors sue for some of their money back. 50 cents on the dollar, 25 cents on the dollar, who knows, comes out in court later on.

Anyway, the small investors were excluded from the State settlement and sued to move it to Federal Court and now can go class action, involve more investor, whatever, causing BofA to settle for more than what they thought was a done deal already...Plus other settlements, in the works by other banks for the same type of lawsuits, were basing their settlements on BofA’s which is now going to Federal Court. So, all bank will have to pony up more settlement monies in the long run. (These lawsuits never go to trial, they always get settled out of court so the banks don’t have to reveal what bunch of crooks they really are and face real criminal charges.)

It’s going to be more bailouts using taxpayer money or some banks are going to fail this time around or maybe both when banks can’t afford the final settlements.

In short, ‘as it goes from’ BofA.

BofA like most banks got TARP funds via selling their bad/worthless mortgages to the GSEs (fannie,freddie,etc.) at par (means they got 100% of the value of the original mortgage paper). So banks are sitting on some cash.

Question is, if they can afford an $8.5 billion settlement, can they afford a larger settlement? Or, do they end up like Greece having to get bailed out and investors lose 50% of their investment?

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