Bank of America Wins Venue Appeal in $8.5 Billion Mortgage Settlement

This is a real shame. Bloomberg reports that Bank of American and Bank of New York have prevailed in their effort to have the $8.5 billion Bank of America mortgage settlement returned to state court in New York.

The use of a Article 77 proceeding for the settlement (a rarely-used New York state procedure) looked really sus, and the initial Walnut Place filing was very persuasive, and Judge William Pauley’s ruling approving the removal to Federal court was blistering (as in he was appalled by the conflicted role played by Bank of New York).

I attended the hearing on the appeal and I suppose should not have been surprised at the absence of anyone from New York attorney general Eric Schneiderman’s office. Even though he filed an objection to the settlement, the use of a Section 77 procedure (which has a strong presumption that the trustee is acting in good faith, which is clearly bogus in this case) places a very high bar for the settlement to be overturned. Had Schneiderman weighed in on the side of Walnut Place, the odds are high the ruling would have gone the other way.

And that is further compounded by the fact that the New York judge to which this case has been assigned, Barbara Kapnick, is widely depicted as at best bank friendly and at worst clueless. So this is a big win for Bank of America, since it looks like any scope of investigation will be severely limited and the deal will sail through. As we wrote before, this settlement is a screaming bargain relative to the liability that BofA faces on these deals.

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  1. kravitz

    h/t to Barry Bear Ritholz…

    Wonder if they rushed to beat this news…

    MBIA tells judge of newly uncovered Countrywide fraud database

    “On Wednesday, MBIA’s lawyers at Quinn Emanuel Urquhart & Sullivan sent a letter to Justice Eileen Bransten requesting that she order Countrywide to produce discovery on an internal fraud-tracking database “which MBIA had not previously known to exist.”

    1. Liah

      This whole thing is just very embarrassing. Nevermind the terrible damage already done and the future damage around the corner. How can these people not see…

      I guess that is probably the point, soul-wise.

      Thanks for all you do, Yves.

      1. kravitz

        Me wonduhs if these are gifts to Obama’s friend Warren. How curious he talks about not making a bad investment in this bank, but Wells is a better one. Then, whining about foreclosure costing rich people (deadbeat variation alert). And Schneiderman doesn’t do something he could have done in the $8.5 settlement.

        Let’s find out what Warren’s donated to BamBam too.

    2. LucyLulu

      So, the banks were victimized by homeowners who had done cash-out refinancings only to be later evicted?

      Who is in the business of lending money and setting underwriting standards? Who made the profits when the new loans were sold to be securitized into more MBS? Do we now blame buyers when a seller loses money on the product the seller was tripping all over themselves to push on less savvy homeowners? I was there and had lenders trying to push me to take out loans at insane LTV and DTI ratios. The banks knew full well the loans were destined to fail but they were able to conspire with credit rating agencies to pass them off as risk-proof investments and make quick profits while off-loading the impending losses on unsuspecting retirees. Gimme a break. Mr. Buffett knows better.

  2. Brian

    Another win for the banks, would love to hear from Yves on this one too:

    “The banks that service about half the nation’s mortgages on behalf of investors will be able to share losses on their junior loans with bondholders and get credit toward the cash they pledged to spend in the settlement, said an Obama administration official involved in drafting the $25 billion agreement. Second liens would typically be wiped out before senior-mortgage investors take a loss, said Laurie Goodman, managing director at Amherst Securities Group LP in New York.”

      1. Brian

        Oh yes. I follow all the time. I just linked to another of today’s news stories there as I’m curious if this is going as badly as Yves imagined.

  3. Francois T

    Once again, investors get shafted by banks, regulators/AG and the justice system.

    And Schneidermann is part of the heist too? Got to give that to the man: When he caves in, he caves in completely.

    What was this stuff Matt Stoller was talking about in the last entry?

    “It’s not often that the people in charge admit what is really going on: a global game for political dominance.”

    How the hell will big banks dominate anything if investors big and bigger get sick and tired of these fuckers and devise systematic strategies to avoid them altogether?

    It should be so damn obvious: a banking system CANNOT, WILL NOT and has never worked without trust.

    Don’t the powers that be understand such a simple concept?

    1. EH

      It should be so damn obvious: a banking system CANNOT, WILL NOT and has never worked without trust.

      I’m not sure what form that trust is supposed to be expressed.

    2. Kate Johansson

      “And Schneidermann is part of the heist too? Got to give that to the man: When he caves in, he caves in completely.” And banks are like Pedophiles! And Schneiderman is getting some sort of orgasmic pleasure out of all the pain. He is charged with protecting his constituents. But he protects Barack Obama, Jamie Dimon, Lloyd Blankfein. He is obscene.

  4. GregR

    Hey, if you can capture the executive branch, and the legislative branch, what makes the judicial think she’s so special?

  5. steelhead23

    This is an outrage. Basically, certain investors, namely Blackrock, negotiated a deal that was good for them and not so good for other investors. These other investors challenged the settlement in federal court. And, following a decision that the banks did not like, they have used little-used law to move the decision to the NY state court system. BAC’s lawyers are very, very good. May they rot in hell.

  6. Pittsburgh Mortgage

    It’s nice to see Bank of America win something for once. I have always felt they were dealt a bad hand when they took over Countrywide Financial and all of the risky sub-prime loans that it underwrote. Bank of America wasn’t the one writing these bad loans. It was the work of Countrywide that put them into this situation.

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