(TheNicheReport.com) Bank of America is still dealing with the aftermath of its Countrywide Financial Corp. acquisition. An $8.5 billion settlement with mortgage-backed securities (MBS) has been ordered to return to its original jurisdiction in New York state by a federal appeals court. Although the monetary amount of the settlement may seem prodigious, the decision by the appeals court marks a victory for Bank of America. In October of last year, Bank of America appealed the decision of a federal court in Manhattan in the case of Bank of New York Mellon v Walnut Place LLC.
Bank of New York Mellon is the trustee and negotiator in the MBS case brought against Bank of America by more than 20 investors, including major insurance companies, investment banking firms and hedge funds. The trustee had previously managed to reach settlement agreement with a number of investors, but an undisclosed group that convened under the name Walnut Place LLC was opposed to the terms of the agreement, particularly the monetary payout. The initial round of negotiations were handled in New York state court, and Walnut Place eventually moved the case to federal court, seeking a higher settlement amount. Bank of America shareholders who were pleased with the initial outcome of the settlement will relish at the fact that the case is headed back to state court. Analysts following the case have indicated that once the case is back in state jurisdiction, it is unlikely that the settlement amount will increase.
The Walnut Place investors claimed that Bank of New York Mellon was not a suitable trustee, that it lacked authority and that its assignment created a conflict of interest. The 2nd U.S. Circuit Court of Appeals ruled that such a claim must be decided in state court. A final and irrevocable ruling on the case is highly anticipated by mortgage investors and the legal community that represents them. Bank of America is hardly alone in this matter. Dozens of institutional investors are bound to seek relief from major lenders that sold them speculative financial instruments backed by risky home loans
, such as the many different MBS offerings sold by the former subprime lender Countrywide. Future claims from investors against the financial institutions that sold them MBS instruments may be modeled after this case. Some of the details revealed in court documents filed by Walnut Place are certainly sobering. In one instance, Walnut Place indicated that it had found false representations in 66 percent of mortgage loans purchased by Countrywide.