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AIG asks judge not to enter $8.5 billion settlement with Bank of America

American International Group asked a judge Tuesday not to enter final judgment on an $8.5 billion Bank of America settlement with investors that won approval last week.

AIG’s request is expected to be considered Feb. 19 before New York State Supreme Court Justice Saliann Scarpulla. The hearing comes after Justice Barbara Kapnick on Friday largely approved the settlement with investors over losses from home loans originated by the bank’s Countrywide unit.

The accord is the largest settlement Charlotte-based Bank of America has reached with private investors since the financial-industry meltdown. The settlement, struck nearly three years ago, involves 22 large investors, including BlackRock, Freddie Mac and MetLife.

The case centers on 1.6 million Countrywide mortgages that were turned into bonds and sold to investors in 530 mortgage-security trusts. Investors have claimed Countrywide misrepresented the quality of the mortgages, which soured in the housing crisis. Bank of America bought Countrywide in 2008, as the mortgage lender verged on collapse and the financial crisis was yet to hit its peak.

Objectors to the settlement, such as AIG, have claimed that the $8.5 billion falls far short of what investors lost when the loans soured.

Bank analysts said Kapnick’s ruling was good news for the bank as CEO Brian Moynihan continues to move past costly litigation stemming from the financial crisis. The bank has already paid $55.8 billion to resolve legal issues since the crisis.

Kapnick’s ruling delivered a partial victory to Bank of America. The judge approved nearly all aspects of the settlement, but her ruling did not approve a portion of the settlement involving modified loans.

Some opponents to the settlement claimed Bank of America is required to repurchase loans that are modified. Kapnick said it appears that Bank of New York Mellon, the trustee overseeing the securities, failed to evaluate that claim. It remains unclear what impact that finding will have on the case.

AIG has said it intends to try to get Kapnick’s ruling vacated. The insurer says her decision fails to address key questions, such as how much of the settlement will be distributed to the trusts.

AIG and Bank of America declined to comment Wednesday. Kathy Patrick, a lawyer for investors supporting the settlement, could not be reached for comment.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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