New York's attorney general will oppose Bank of America Corp's $8.5 billion settlement over repurchasing toxic mortgage loans, joining a growing number of unhappy mortgage bond buyers now fighting the pact reached with some of the largest institutional investors in the country.
In court papers filed late Thursday, New York Attorney General Eric Schneiderman sought to intervene in order to protect the marketplace and the interests of New York investors, the vast majority of whom otherwise are not present before the Court in this proceeding.
The filing comes a day before a scheduled court hearing in the case that's expected to address when parties opposing the deal can seek discovery.
In late June, BofA settled an eight-month dispute with outside investors who bought Countrywide Financial Corp mortgage bonds.
The investors -- including Pacific Investment Management Co, or PIMCO, and BlackRock Inc -- requested the bank repurchase toxic home loans that comprised a series of mortgage-backed securities.
BofA, the investors and securities trustee Bank of New York Mellon agreed to an $8.5 billion settlement that applies to all investors in nearly all Countrywide Financial-created mortgage bonds, but the deal must be approved by a New York court.
The attorney general said in a filing the accord may interfere with his ability to pursue claims against the banks involved, and claims that BofA and Bank of New York may have violated their fiduciary duties in reaching the agreement.
In court documents, Schneiderman echoed complaints from other investors who have said that the deal was done in secret and was rife with conflicts. He called the proposed settlement both procedurally and substantively flawed.
Schneiderman argued that Bank of New York was conflicted during the negotiations with Bank of America because Countrywide agreed to indemnify it for claims arising out of its role as trustee.
As trustee, BNYM owed and owes a fiduciary duty of undivided loyalty to trust investors, and its direct financial interest in the consummation and approval of the settlement violates that duty of strict loyalty, said Schneiderman in court filings.
A spokesman for Bank of New York said in a statement that the allegations are outrageous and baseless.
We are confident that we have fulfilled in all respects our responsibilities as Trustee, he said. The AG's action is misguided and fails to comprehend the role of the Trustee and the benefit the settlement would provide to investors.
Bank of America declined to comment.
The objection is the latest wrinkle in BofA's push to rid itself of mortgage issues stemming from the collapse of the U.S. housing market.
The bank inherited many of its current problems from Countrywide Financial Corp. BofA bought the largest U.S. subprime mortgage lender in July 2008, months before the global financial crisis peaked.
This year, BofA has agreed to a series of settlements to remove the specter it may have to repurchase billions in soured mortgages.
In January, the bank settled with U.S. government-backed mortgage giants Fannie Mae and Freddie Mac for $2.8 billion.
In April, it settled with bond insurer Assured Guaranty for $1.6 billion.
The case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.
(Reporting by Andrew Longstreth; Editing by Lisa Shumaker, Bernard Orr)