Congressman Brad Miller (D-N.C.) believes the Federal Housing Finance Agency should investigate a proposed $8.5 billion settlement between Bank of America (BAC) and investors who lost money on toxic residential mortgage-backed securities to see if the settlement amount is too low. The deal involves a settlement BofA reached with Bank of New York Mellon (BK), which served as trustee for the 530 MBS trusts involved in the proposed deal. The mortgage-backed securities under BofA's umbrella were originally tied to Countrywide Financial Corp., which BofA acquired three years ago. Miller contends in his letter to FHFA Acting Director Edward DeMarco that the federal agency, in its role as conservator of Fannie Mae and Freddie Mac, has a duty to investigate the value of the proposed deal since both GSEs "have substantial investments in the RMBS subject to the proposed settlement and have already suffered losses on the RMBS." Rep. Miller writes "the proposed settlement is for $8.5 billion on RMBS with an initial par value of $424 billion. The unpaid principal balance on those RMBS is now $174 billion. The proposed settlement, therefore, is approximately 2% of the initial par value, and less than 5% of the unpaid principal balance." Miller said he's concerned about the proposed settlement because once finalized, individual investors who disagree with the deal's current terms will be unable to challenge it since "investors in the RMBS cannot petition to have their trusts excluded from the settlement so they can pursue their claims independently." Miller is worried the proposed settlement, as it stands now, reflects only the wishes of one party outside BofA — Bank of New York Mellon. Miller claims "more than 60% of Bank of New York Mellon's trustee business comes from Bank of America," making it likely the bank had a powerful incentive to settle the case in a manner that is deferential to BofA. Miller asks DeMarco in the letter whether the FHFA intends to issue more subpoenas to determine whether the agency should support the proposed settlement as it stands now. So far, a group of bondholders have stepped out on a limb, filing a lawsuit challenging the settlement on the grounds that it's unfair to other investors. Miller concluded his letter by asking DeMarco what information will be made available to the public about the RMBS settlement and its effect on the GSEs. He said this information should be released to ensure federal agencies are acting in the taxpayers' best interest. Write to Kerri Panchuk.