Bloomberg News

Countrywide Suit Belongs in N.Y. State Court, FHFA Says

October 19, 2011

(Updates with Bank of America response in sixth paragraph.)

Oct. 19 (Bloomberg) -- Countrywide Financial Corp. defendants improperly moved a suit by the Federal Housing Finance Agency to federal court in Manhattan from state court in an attempt to transfer it to a multidistrict litigation case in California, the agency said today.

Countrywide was among 17 banks sued by the FHFA in September. The FHFA alleges it lost “billions of dollars” after Countrywide offered $26.6 billion worth of residential mortgage backed securities to Fannie Mae and Freddie Mac from 2005 to 2008.

FHFA says Countrywide filed a removal notice to move the case to federal court in Manhattan on Sept. 30. At least 11 of 16 other suits brought by the agency are currently before federal judges in New York. Countrywide also filed a notice on Oct. 3 to transfer the case to the Central District of California, where a multidistrict litigation that relates to it is pending.

“In their bid to achieve removal, the Countrywide defendants stretch the doctrines upon which they rely beyond the breaking point,” FHFA said in court papers filed today. “The Countrywide defendants’ preferred forum is not the legal forum,” FHFA said. “Plaintiff FHFA thus respectfully requests that this action be remanded to New York state Supreme Court.”

‘Fundamentally Misrepresented’

In the complaint, the FHFA alleges Countrywide “fundamentally misrepresented” the quality of securities offered and asserts claims that include fraud, aiding and abetting and negligent misrepresentation.

Lawrence Grayson, a spokesman for Bank of America, which acquired Countrywide in 2008, declined to comment on the U.S. request.

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

The case is FHFA v. Countrywide Financial Corp., 11cv6916, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Mary Romano, Glenn Holdcraft

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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