Bank of America’s (NYSE:BAC) $8.5 billion settlement to put to rest the claims brought forth by nearly 25 mortgage securities investors has gotten the green light from a New York State judge who, over a 53 page decision, determined that the 2011 settlement was “reached in good faith,” the New York Times is reporting.
The original settlement was disputed by AIG (NYSE:AIG), which was a significant investor in the mortgage securities, and asserted that trustee supervising the bonds “did not push aggressively enough” for additional money from Bank of America. However, Justice Barbara R. Kapnick of State Supreme Court in Manhattan “did not abuse its discretion in entering into the settlement agreement, and did not act in bad faith or outside the bounds of reasonable judgment,” she said in her decision.
AIG contended that the trustee — Bank of New York Mellon — did not live up to its duties throughout the process, one which was “fraught with conflicts of interest.” However, Kapnick said that claims made by mortgage investors regarding loan modifications would remain in place, since Bank of New York Mellon settled them “without investigating their potential worth or strength,” the Times said.
For Bank of America, getting the ruling out of its way is a big move toward removing the legal overhangs that have haunted it since the financial crisis, and its troubled purchase of CountryWide Financial in 2008. Bank of America also agreed to bring about servicing improvements to the Countrywide loans in the 530 mortgage-backed securities at issue in the case as a part of the settlement.
While AIG expressed discontent with the ruling, it was overall amicable to the judge’s decision, and vowed that the it would continue to pursue the matter. “We are pleased that the court refused to approve the proposed settlement in its entirety and found that the trustee acted unreasonably in agreeing to compromise billions of dollars of investor claims,” AIG said in a statement. “We respectfully disagree with the other aspects of the court’s ruling, which are not supported by the record and which set a dangerous precedent that could eliminate important protections for investors. This case is very far from over because the settlement will not take effect until a variety of potential post-trial motions and appeals are resolved.”