Bank of America Corp.'s proposed $8.5-billion settlement with 22 major holders of Countrywide Financial Corp. mortgage securities came under fire in Manhattan federal court as a deadline to challenge the deal arrived.
The flurry of objections Monday and Tuesday included filings by the Federal Deposit Insurance Corp., which represents failed banks that lost money on the mortgage bonds, and the Federal Housing Finance Agency, which regulates the government-controlled mortgage giants Freddie Mac and Fannie Mae.
The FDIC and the FHFA described their objections as place holders. They said they needed more time to fully understand the deal that Bank of America struck with the holders of bonds from Countrywide, the Calabasas mortgage goliath that was near bankruptcy from soured loans when BofA acquired it in 2008.
The settlement is the centerpiece of Bank of America Chief Executive Brian T. Moynihan's efforts to deal with lawsuits accusing Countrywide of deceiving bondholders about the recklessness with which it had funded subprime and other high-risk home loans.
Another defendant hoping to settle the litigation is the Bank of New York Mellon, which was the trustee for 530 pools containing thousands of Countrywide mortgages that had been bundled to back mortgage securities.
In a statement, the FHFA praised certain aspects of the proposed settlement aimed at improving customer service and correcting bungled foreclosure documents. It said, though, that it wanted "to reserve its capability to voice a substantive objection in the unlikely event that necessity should arise."
"Today was the last day to file and FDIC and FHFA wanted to make sure they have a seat at the table," FBR Capital Markets analyst Paul Miller said.
Separately, a group of aggrieved homeowners whose loans are among those backing the securities challenged the settlement and filed a lawsuit seeking class-action status on behalf of borrowers they contended had been severely damaged by botched loan servicing.
One of the named plaintiffs said Bank of America foreclosed on her home even though she never missed a loan payment. She said Bank of America demanded that she repay the bank for making tax and insurance payments on her behalf when she had made them herself.
In another action, US Bank filed a lawsuit in state court in New York seeking to force Bank of America to buy back allegedly misrepresented loans in a separate $1.75-billion mortgage pool for which US Bank is the trustee.
A Bank of America spokesman declined to comment on the litigation.
Concerns over the rising cost of dealing with Countrywide loans put Wall Street in a dither this month, causing a sell-off in Bank of America shares that finally slowed when noted investor Warren Buffett agreed to invest $5 billion in Moynihan's bank.
Bank of America shares closed Tuesday down 27 cents, or 3%, at $8.12.
[Updated 6:45 p.m.: Bank of America spokesman Lawrence Grayson, addressing the borrowers' challenge to the proposed settlement with mortgage investors, said the bank believes the agreement was reached in a "very reasonable" manner and should be approved with no change. He declined to comment on the borrowers' lawsuit.
Bank of America doesn't believe that US Bank has legal standing to demand a repurchase of all the loans for which it is a trustee, Grayson added.]
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-- E. Scott Reckard
Photo: Brian T. Moynihan, Bank of America's embattled CEO. Credit: Bloomberg / Jeff Kowalsky