Bloomberg News

Home Loan Banks Move to Take Role in BofA Mortgage Settlement

July 14, 2011

July 14 (Bloomberg) -- Six federal home loan banks moved to join a case in which a New York judge will rule on an $8.5 billion settlement by Bank of America Corp. with Bank of New York Mellon Corp. over mortgage-securitization trusts.

“The FHLBs have not made decisions whether to oppose the settlement,” the Federal Home Loan Banks of Boston, Chicago, Indianapolis, Pittsburgh, San Francisco and Seattle said in a filing yesterday in New York state court in Manhattan.

The banks said they’re seeking to intervene because the procedures that BNY Mellon has established for approval of the proposed settlement won’t provide enough information “to make careful and informed decisions.”

Earlier yesterday, TM1 Investors asked to join in the case and a group of investors operating under the name Walnut Place pursued an earlier bid to intervene. Public pension funds including the Policemen’s Annuity & Benefit Fund of Chicago, the Westmoreland County Employee Retirement System, City of Grand Rapids General Retirement System and City of Grand Rapids Police & Fire Retirement System have also sought to intervene.

BNY Mellon, as trustee of the 530 trusts, filed a petition June 29 seeking approval of the settlement. The agreement requires Bank of America, its Countrywide Financial unit or both to pay $8.5 billion.

Kevin Heine, a spokesman for Bank of New York Mellon, declined to comment. Lawrence Grayson, a spokesman for Bank of America, declined to comment.

New York Probe

The request by the home loan banks comes a day after it was revealed that New York Attorney General Eric Schneiderman is seeking client information from more than 20 companies as part of a state probe of the proposed accord. Schneiderman’s office sent letters dated July 7 to companies including Goldman Sachs Group Inc., BlackRock Inc. and TCW Group Inc. regarding their participation in the deal.

The information was requested in connection with an investigation “into certain matters related to securitization of residential mortgages,” according to the letters. Investment managers were asked to identify clients affiliated with New York state government entities and public authorities, as well as nonprofit or charitable corporations under New York law that invested in the 530 residential mortgage-securitization trusts established from 2004 to 2008, according to copies of the letters obtained by Bloomberg News.

Investors claimed that units of Countrywide failed to honor contracts, saying they needed to repurchase loans that never matched their promised quality. Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008.

Bondholder Support

The settlement was supported by a group of 22 bondholders, including Goldman Sachs and BlackRock, both based in New York, and Societe Generale SA’s TCW. Also among the 22 is the Federal Home Loan Bank of Atlanta.

BNY Mellon is required to give notice of the proposed deal to investors, mortgage companies, ratings companies, bond insurers and underwriters.

New York State Supreme Court Justice Barbara R. Kapnick set a hearing on the settlement for Nov. 17.

The home loan banks said in their filing yesterday that Countrywide and Bank of America face liabilities to repurchase defective loans that are far greater than the amount of the proposed settlement.

“The banks need disclosure to understand why BNYM decided to accept the proposed settlement amount and to decide whether to object to that amount,” they said in court papers.

The case is In the matter of Bank of New York Mellon, 651786/2011, New York state Supreme Court (Manhattan).

--Editors: Fred Strasser, Andrew Dunn

To contact the reporter on this story: Karen Freifeld in New York State Supreme Court at kfreifeld@bloomberg.net

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net


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