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MBS Investors Sue Countrywide for $80 Billion

Modified loans at issue

December 1, 2008

By MortgageDaily.com staff


A class action filed today seeks to force Countrywide Financial Corp. to repurchase as much as $80 billion in securitized mortgages that it plans to modify. But Countrywide's parent company claims that investors will be better off after the modifications.

The suit was filed in New York's state supreme court on behalf of investors of mortgage-backed securities issued by the Bank of America Corp. subsidiary, according to a statement from the plaintiffs' attorney, David J. Grais of Grais & Ellsworth LLP.

The case revolves around the $8.4 billion predatory lending settlement with several states announced in October by BoA. That agreement called for the company to systematically modify loans for nearly 400,000 troubled borrowers.

Countrywide, however, doesn't intend to bear any of the settlement costs itself, according to a copy of the complaint provided by Grais. Instead, it plans to pass the cost on to MBS investors.

The complaint claims that the pooling and servicing agreements require that Countrywide must repurchase any loan it modifies that was sold to any of 374 trusts in the CWL series and the CWALT series.

"No provision of any of the PSAs permits Countrywide Servicing or Countrywide Home Loans to modify any loan without triggering the requirement that either Countywide Home Loans or Countrywide Servicing purchase the loan," the complaint states.

In a statement to MortgageDaily.com, BoA said it is still reviewing the lawsuit and cannot yet comment on specific claims. But the company expressed disappointment in the attempt to derail the streamlined modification program.

"Loan modifications have been occurring for decades without objections or challenges, so we are especially troubled at the timing of this complaint," the statement said. "Countrywide believes that plaintiffs' lawsuit represents an unlawful effort to assert rights of the trusts."

Greenwich Financial Servicers Distressed Mortgage Fund 3 LLC and QED LLC are the plaintiffs representing the class. Grais speculates that thousands of potential class members exist.

Based on the 400,000 loans involved with unpaid balances estimated at $200,000 each, Grais estimates that Countrywide and BoA "would be liable to pay the trusts approximately $80 billion for the loans it modifies," according to a statement from the New York-based law firm.

"A justiciable controversy exists between plaintiffs and defendants because plaintiffs assert, and defendants deny, that either defendant Countrywide Home Loans or defendant Countrywide Servicing is required to purchase all loans in the CWL and CWALT securitizations that Countrywide modifies," the complaint says. "The resolution of this controversy by a declaratory judgment will materially affect the value of certificates owned by plaintiffs and members of the class on whose behalf plaintiffs bring this action."

BoA noted in its statement that the planned modifications will result in fewer losses to investors and vowed to defend its position.

"We are confident any attempt to stop this program will be legally unsupportable," the statement said. "Countrywide intends to pursue plaintiffs for any and all remedies available to it, including the recovery of its costs incurred in having to defend this improper action."


Related:
Investor Law Firm Challenges Modifications
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.


Greenwich Financial Services Distressed Mortgage Fund 3, LLC, and QED LLC, on behalf of themselves and all other persons similarly situated, Plaintiffs, against Countrywide Financial Corporation, Countrywide Home Loans, Inc., and Countrywide Home Loans Servicing LP, Defendants.
Dec. 1, 2008 (Supreme Court of the State of New York, County of New York)

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