Bank of Americas’s stock beat a bit of a retreat today as its so called $8.5 billion settlement came under increased fire. Frankly, the number of objections filed prior to late afternoon yesterday and today meant it was dead in its current form. At best, it would take a two or three years and a bigger price tag for any deal to be concluded (although we are in the skeptics’ camp, particularly as far as the currently overly broad waiver of liability is concerned).
Nevertheless, the latest developments pound more nails into the coffin. Yesterday, as we noted, the FDIC filed a minimalist objection, saying the disclosures were inadequate for it to know whether it would oppose the deal or not. Today, a suit by several homeowners, supported by the National Consumer Law Center, flagged an issue that we highlighted in our initial comments on the deal: that the settlement included provisions to manage foreclosures to strict timetables, designed to speed them up. That was one of the “gimmies” to investors, and homeowner advocates are none too happy. Per the New York Times:
On Tuesday, several homeowners filed suit in the Federal District Court in Manhattan seeking to block a proposed $8.5 billion settlement between Bank of America and major mortgage investor..The suit claims that the deal fails to address widespread servicing problems and would actually speed up foreclosures..
“There is a growing realization that this settlement needs more scrutiny,” said Keith Fleischman, the lawyer for the four homeowners in the suit. “It needs to address the housing crisis itself.”
Lawyers for the National Consumer Law Center said in a report prepared as part of the suit that the proposed settlement “will speed up foreclosures, perpetuate existing servicing abuses in the system, and undermine federal programs designed to stabilize the housing market.”
“The touted servicing ‘improvements’ aim to increase the speed of foreclosures but fail to set standards to protect homeowners from wrongful or unnecessary foreclosure or abusive servicing,” they added.
The Times story, as almost an aside, mentioned another legal development which appears significant:
On Tuesday, U.S. Bancorp, the trustee of a $1.75 billion mortgage pool originated by Countrywide in 2005, filed a lawsuit to force Bank of America to buy back the underlying mortgages, arguing the loans were made without proper documents and didn’t conform to underwriting standards.
This matters because the $8.5 billion settlement involves pretty much all, if not all, of the Countrywide mortgage securitizations which had Bank of New York as trustee. As we pointed out, citing research by Adam Levitin, BoNY was the house trustee for Bank of America’s RMBS, and could therefore be expected to be particularly accommodating to any requests made by Bank of America. The fact that a different trustee isn’t playing ball and instead is putting back loans would seem to strengthen the case of attorneys general Eric Schneiderman and Beau Biden, both of whom questioned the role Bank of New York was playing in the deal (it was getting an expanded indemnification from Bank of America, which is tantamount to a bribe).
As Tom Adams noted via e-mail,
This proposed $8.5 billion settlement has turned out to be a disaster for BofA – it has prompted discovery and crystalization of a whole host of other claims. Since it seems likely, especially given the Fed’s and Fannie’s presence in the settlement group, that the administration favored this settlement, it is also a bit of a disaster for the administration’s attempt to sweep the MBS problems under the rug.
We’ve long felt that there is still enough of an independent judiciary in the US to make it impossible to bury the widespread abuse of legal procedures that took place in the mortgage boom and its aftermath. So these setbacks to Bank of America offer hope that enough of the rule of law is operating to impede at least some aspects of the banking industry’s combined pillage/coverup operation.