Saturday, August 6, 2011

New York Attorney General Schneiderman Drops Bomb on Bank of America Settlement and Bank of New York « naked capitalism

New York Attorney General Schneiderman Drops Bomb on Bank of America Settlement and Bank of New York « naked capitalism
This is from Naked Capitalism reporting on new opposition to the scam settlement Bank of America and bank of New York Mellon are trying to get away with in order to free themselves of future liabilty resultant from the failure to transfer proper documents to the trusts in the mortgatge securitizations scandal.  Here is an excerpt but you can read the entire story by following the link above to Naked Capitalism

The motion objects to the settlement on multiple grounds:

1. The amount to be paid appears to be too low given the damages suffered

2. The other consideration (the undertakings by BofA) are pretty meaningless and don’t make up for the insufficient dough. Per the motion:

Given the steeply discounted cash payment, the value of any nonmonetary consideration is a crucial element in evaluating the Proposed Settlement’s fairness. Here, the Attorney General believes that the proposed settlement’s purported servicing improvements are too vague and ill-defined to provide any concrete value to investors.

3. The trustee failed to perform key duties it had promised to carry out in the contracts that govern these deals (the pooling and servicing agreement, or PSA), and made false certifications about its actions:

One of BNYM’s primary obligations as trustee under these PSAs was to ensure the proper transfer of loans from Countrywide to the Trusts. The ultimate failure of Countrywide to transfer complete mortgage loan documentation to the Trusts hampered the Trusts’ ability to foreclose on delinquent mortgages, thereby impairing the value of the notes secured by those mortgages. These circumstances apparently triggered widespread fraud, including BoA’s fabrication of missing documentation.

This is the first time I have ever seen a court filing discuss widespread document fabricatio by a servicer. This of the proper transfers is germane for the BofA deal because BofA gives Bank of New York indemnification for this liability. And it’s even juicier: Bank of New York’s self dealing works to the disadvantage of the investors to whom it owes a fiduciary duty:

But as BNYM concedes in its petition here (Petition ¶¶ 78-81), Countrywide has inadequate resources. A side-letter agreement appended to the Proposed Settlement expands the benefit of the PSAs’ indemnification provisions by having BoA, now Countrywide’s parent company, expressly guarantee the indemnification obligations of Countrywide. In addition, the Proposed Settlement expands the indemnification to cover BNYM’s negotiation and implementation of the terms of the settlement, thus shielding the trustee from significant forms of liability in connection with the formation and implementation of a settlement which seeks to compromise the claims of the investors to whom BNYM owes fiduciary duties.

Although the motion discusses the constrained financial capacity of Countrywide, let us not forget that Bank of America has limited resources as well, so any valuable indemnification to Bank of New York comes out of what otherwise might have been available to pay the investors.

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