Banking

February 19, 2014

Bank of America $8.5 billion settlement delay request rejected

A judge on Wednesday said she will not delay final entry on Bank of America’s $8.5 billion settlement over mortgage-backed securities.

A judge on Wednesday said she will not delay final entry on Bank of America’s $8.5 billion settlement over mortgage-backed securities.

New York State Supreme Court Justice Saliann Scarpulla rejected a request by insurer American International Group to not enter final judgment.

The accord is the largest settlement Charlotte-based Bank of America has reached with private investors since the financial-industry meltdown. Struck in 2011, the settlement involves investors who claimed losses from home loans originated by Countrywide Financial Corp.

A Bank of America spokesman declined to comment Wednesday.

The case centers on 1.6 million Countrywide mortgages that were turned into bonds and sold to investors in 530 mortgage-security trusts. Investors 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.

In January, Justice Barbara Kapnick delivered a partial victory to Bank of America when she approved most of the settlement except for a portion involving modified loans. Some settlement opponents 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.

Earlier this month, AIG asked Scarpulla not to enter final judgment. AIG argued the $8.5 billion falls far short of what investors lost when the loans soured. The insurer has also argued that Kapnick’s ruling failed to address key questions, such as how much of the settlement will be distributed to the trusts.

In a statement Wednesday, AIG said it “looks forward to pressing ahead with its appeal at the appropriate time.”

Bank analysts said Kapnick’s January ruling was good news for Bank of America 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.

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