Federal Home Loan Banks Challenge BofA Settlement, Say They May Be Owed a Lot More

This is getting interesting. I had heard that a lot of investors were unhappy with the proposed Bank of America settlement of liability for selling investors a garbage barge when they’d been promised something a tad better. But being unhappy is one thing, actually taking concrete steps to oppose the $8.5 billion deal (which heinously also included a broad release for chain of title liability) is quite another. While a group of investors who had pursued their own objections were quick to file a petition objecting to the settlement, they are small fry and their protest in isolation would probably be rejected by the judge.

The equation changed today with several Federal Home Loan Banks effectively saying they had been kept out of the loop and have reason to think the settlement is inadequate. While this falls short of a an effort to block the deal, the FHLBs have demanded more information. What they uncover may confirm their argument, that the settlement amount really should be much higher, with their estimate in the range of $22 to $27.5 billion, if not higher.

At a minimum, this move throws a spanner in the works and puts some heavyweight names who can’t be easily dismissed on the other side of the table from BofA and the conflict-ridden trustee, Bank of New York. In addition, New York attorney general Eric Schneiderman has taken a keen interest and may well raise objections to the deal.

From Bloomberg:

The home loan banks, which invested more than $8.8 billion in the mortgage-backed securities, are trying to get access to more information about the deal by joining the case and said a reasonable settlement could pay in the range of $22 billion to $27.5 billion or more.

Expert reports used as legal support for the settlement “raise more questions than they answer,” the home loan banks said in a court filing today in New York State Supreme Court, where a judge will consider approving the settlement later this year….The Federal Home Loan Banks of Boston, Chicago, Indianapolis, Pittsburgh, San Francisco and Seattle are seeking to intervene in the case and may oppose the settlement.

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  1. Matt

    Was not Countrywide borrowing over 50 Billion from the FHL Bank of Atlanta? Wonder if they had an open door at the borrow window if they had an similarly open door when it came time to selling securities.

  2. Capt. Jack

    For those interested I’ll put the transcript on the Hamlet as soon as I get my mitts on it.

    The big one in the Judge’s Order is the Fryzel case.

    Fryzel flies in the face of the Veal opinion…and the mills have hung their hats on the Bucci case (which has been appealed)

    If you read into the three page order it is worth noting that Judge McConnell specifically mentions Bucci. One could infer he may not be in agreement with Judge Silverstein’s ruling on Bucci v. Lehman Bros.

    So this is a pretty big deal…another Judge Schack may emerge.

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