FDIC files objection to Bank of America mortgage settlement

Claims $500 million deal benefits a small subset of the class represented

While Bank of America hoped it could shed the mortgage securities woes it had picked up with its acquisition of Countrywide Financial in 2008, the deal it struck to mitigate problems and reimburse investors has received new scrutiny.

The deal, a $500 million settlement it struck in April, was designed to take care of approximately 80 percent of the mortgage securities that were back by defective loans. But the figure of $500 million is said to be too small in regards to the $450.7 billion original face values of the mortgages in question.

While finalization of this deal was expected to be made in hearing in October, action by the FDIC could now derail that confirmation. On Oct. 9, the FDIC filed an objection to the settlement, asking that the terms be renegotiated to be more equitable for all involved.

The FDIC has alleged that deal was advantageous for a portion of the plaintiff class. The settlement is being scrutinized because it sets aside only $41 million for the claims of 91 percent of the investors while the lawyers for the named plaintiffs were set to receive $85 million.

The FDIC has urged the judge presiding over the settlement to reject it. Business Journal reports that the FDIC says the plaintiff group in question "had a conflict of interest in negotiating and accepting the proposed settlement because, under the settlement, they would receive substantial payments at the expense of the rest of the class."

BoA has been no stranger to legal hurdles this year. On Oct. 2 it reached a settlement with the state of New York to overhaul its aid of struggling homeowners. It agreed to offer kinder options for homeowner by changing its communication plan and potentially offering loan re-negotiations for those underwater with their mortgages.

But this benevolent gesture is not anticipated to sway the FDIC’s objection. More new on the reworked settlement is expected shortly.

Associate Editor

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Chris DiMarco

Chris DiMarco, Associate Editor of InsideCounsel magazine, has a background in multimedia production with previous involvement in projects in which he developed and created content...

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