Politics & MoneyInvestments

Countrywide MBS settlement goes back to New York

The Second Circuit Court of Appeals sent Bank of New York Mellon’s (BK) $8.5 billion settlement with Countrywide (Bank of America) over mortgage-backed securities back to state court this week.

Analysts see the ruling as good news for Countrywide and the Bank of New York Mellon, who fought with investors over the choice of venue for months. The case ties back to BoNY’s decision, as trustee off loans in a securitized trust, to settle with Countrywide on behalf of RMBS investors over losses on loans originated by the closed lender.

Bank of New York Mellon and Countrywide agreed to settle last summer. But investors with loans in the trust pushed back, suggesting the settlement would rob them of an opportunity to represent their own interests.

The investor plaintiffs, who are suing under the name Walnut Place, had the original case moved from state court to federal court on the grounds that it’s a class-action with multiple parties, making it qualified for federal jurisdiction. Analysts felt the move to federal court ended BNY Mellon’s ability to hold investors to the settlement. Ever since then, both parties have been sparring over the appropriate jurisdiction for the case.

BNY Mellon secured victory the latest victory with the Second Circuit remanding the settlement dispute back to state court on the grounds that “the case falls within the securities exception to both original and appellate jurisdiction under the Class Action Fairness Act of 2005.”

“We are gratified that the matter has been resolved on appeal,” said Lawrence Grayson with Bank of America. “We believe the trustee acted reasonably in entering into the settlement agreement, and we look forward to completing the judicial proceeding to approve that decision.”

Fitch Ratings said with the case back in state court, “approval (of the settlement) is likely to occur earlier, perhaps in mid 2012.”

Barclays Capital analysts agreed, saying, “The move back to New York state court increases the likelihood of the settlement going through and pushes the timeline forward. We expect the cash payouts from the settlement to happen sometime in the first half of 2013 in our base case.”


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