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Bank of America’s $8.5B Proposal to Investors Slated for Federal Review

Investors opposed to the $8.5 billion settlement reached between ""Bank of America"":http://www.bankofamerica.com and securities trustee ""Bank of New York Mellon"":http://www.bnymellon.com/ will get their day in federal court.

The settlement was originally filed in New York state court. A band of dissenting investors going by the name of Walnut Place moved the action to federal court, and BNY Mellon has been pushing for the case to revert back to the state.

Judge William Pauley of the U.S. District Court for the Southern District of New York in Manhattan ""denied BNY Mellon's motion"":http://www.nysd.uscourts.gov/cases/show.php?db=special&id=134 this week.

""The settlement agreement at issue here implicates core federal interests in the integrity of nationally chartered banks and the vitality of the national securities markets,"" Judge Pauley said. ""A controversy touching on these paramount federal interests should proceed in federal court.""


Bank of America’s $8.5 million proposal involves 530 trusts and covers residential mortgage-backed securities (RMBS) that were issued by Countrywide before BofA bought the subprime lender. The collective original principal balance of the RMBS included in the agreement totals $424 billion. The current unpaid principal balance is approximately $221 billion.

In Judge Pauley’s decision, he notes that the trusts’ claims could exceed $150 billion.

BofA said at the time the proposal was put forth that the settlement would resolve “nearly all” of its repurchase exposure stemming from Countrywide’s legacy first-lien RMBS, but the settlement has met with fierce opposition since it was accepted in June by BNY Mellon, acting as trustee of the securities.

Bank of America says 22 investors in the RMBS trusts â€" including the Federal Reserve Bank of New York, BlackRock, and Pimco â€" agreed to support the proposal.

Others though â€" including six Federal Home Loan Banks, the group of institutional investors known as Walnut Place, and even New York’s attorney general â€" say the settlement is inadequate and was reached behind closed doors without their consent or knowledge of the negotiations.

As part of its proposal, Bank of America also agreed to implement certain servicing changes, including transferring high-risk loans owned by the trusts to subservicers and paying additional fees to the investors if benchmarked default-servicing timelines are not met.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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