|Bank of America Corp. is passing the expense of its recent $8.4 billion settlement on to investors of residential mortgage-backed securities -- a violation of the securitization agreements, according to a New York law firm.
The firm, Grais & Ellsworth LLP, is holding a briefing for Countrywide Financial Corp. securitization investors on Nov. 11 in New York.
BoA acquired Countrywide on July 1. At the time, several states had actions pending against the Calabasas, Calif.-based company. BoA said it factored the pending litigation into its decision to acquire the mortgage behemoth.
Last month, Charlotte, N.C.-based BoA announced agreements with several states to resolve outstanding claims against Countrywide. BoA will provide up to $8.4 billion in interest rate and principal reductions to systematically modify loans for nearly 400,000 troubled borrowers.
"By taking projected foreclosure losses and instead directing those funds into these proactive foreclosure prevention efforts, we create a solution in the best interests of both our customers and the investors whose loans and securities we service," BoA Chief Financial Officer Joe Price said at the time.
But Countrywide doesn't plan to pay the $8.4 billion itself, Grais & Ellsworth said in a statement Wednesday. It plans to shift settlement costs to RMBS investors.
The attorneys questioned the sincerity of BoA's assertion that the modifications will increase trust revenue by avoiding foreclosure expenses.
"If it were true, then Countrywide as servicer would be modifying those loans anyway, and the settlement between the attorneys general and Countrywide as predatory lender would convey no incremental value at all to borrowers in distress," the law firm stated. "In our view, Countrywide's plan will violate the agreements that govern those trusts."
Grais & Ellsworth claims that a conflict-of-interest exists with Countrywide's dual roles as both predatory originator and servicer granting $8.4 billion in investor-paid concessions.
In its pooling and servicing agreements, Countrywide warrants that it complied with all local, state and federal mortgage laws -- including predatory laws, the law firm said. Non-compliant loans require repurchase by Countrywide.
The agreements allegedly also require that as a servicer, Countrywide must place the interests of the trustee and certificate holders before its own as originator.
In addition, the attorneys claim the agreement limits loan modifications to 5 percent of the pool and that Countrywide must repurchase modified loans. Countrywide must also pay any costs tied to its own predatory lending practices as an originator of the securitized loans.
"Countrywide and BoA must be assuming that the $8.4 billion will be spread over enough certificate holders that none will think it worth the trouble to protest," Grais & Ellsworth stated. "By working together for their mutual protection, certificateholders can disabuse Countrywide and BoA of this unfortunate assumption."
A BoA spokesman provided MortgageDaily.com with a statement reaffirming the company's position that the planned modifications are in the best interests of investors and borrowers.
"We are disappointed anyone would try to halt a program intended to keep as many as 400,000 at-risk families in their homes," the spokesman said.
Mother of All Settlements
Bank of America Corp. will spend mortgage than $8 billion to settle charges of predatory lending at Countrywide Financial Corp.