* Some bondholders say agreement may be unfair
* $8.5 billion accord to resolve Countrywide problems
By Jonathan Stempel
NEW YORK, July 5 A group of bondholders plans
to challenge Bank of America Corp's (BAC.N) $8.5 billion
settlement with holders in soured mortgage-backed securities,
saying it may be unfair to other bond investors.
In court papers filed on Tuesday in New York State Supreme
Court in Manhattan, 11 companies sharing the name Walnut Place
said they had "serious concerns about the secret,
non-adversarial, and conflicted way in which the proposed
settlement was negotiated and about the fairness of the
Bank of America on June 29 announced the settlement with 22
institutional investors including BlackRock Inc (BLK.N),
MetLife Inc (MET.N), Allianz SE's (ALVG.DE) Pacific Investment
Management Co and the Federal Reserve Bank of New York.
That accord was part of $20 billion of mortgage-related
charges that the bank said it would take, hoping to resolve
much of the liability from its $2.5 billion purchase in 2008 of
mortgage lender Countrywide Financial Corp. [ID:nL3E7HT1RJ]
But Walnut Place called the settlement "inadequate." It
said it plans on July 13 to ask Justice Barbara Kapnick, whose
approval is required for the settlement, to excuse it from the
accord, or else to compel greater disclosures about the pact.
Walnut Place had in February sued Bank of America, seeking
to force it to buy back loans underlying more than $1.06
billion of securities it owns, alleging misrepresentations by
Bank of New York Mellon Corp (BK.N) favors approval of the
$8.5 billion settlement, in its capacity as trustee for 530
mortgage-securitization trusts. The settlement would cover
Walnut Place's claims.
Representatives of Bank of America and Bank of New York
Mellon had no immediate comment. Owen Cyrulnik, a lawyer for
Walnut Place, did not immediately return a call seeking a
The settlement also requires Bank of America to improve its
servicing operations. Analysts view it as a possible template
for settlements by other companies in the mortgage industry.
Kathy Patrick, lead lawyer for the 22 institutional
investors, in an interview said Walnut Place has the burden of
showing that the settlement as a whole is unreasonable, or that
any conflicts of interest exist.
"Walnut Place, like every other investor, will have an
opportunity to be heard," she said. "We believe that both in
its amount and in its servicing improvements, the settlement is
fair to the covered trusts."
In its February lawsuit, Walnut Place alleged that
Countrywide had made false representations about 1,432, or
nearly 66 percent, of the 2,166 loans it investigated.
It said these misrepresentations in part concerned whether
underwriting guidelines were followed, and the size of the
loans relative to the underlying homes' values.
A hearing to consider approval of the $8.5 billion
settlement is scheduled for Nov. 17.
The case is In re: The Bank of New York Mellon, New York
State Supreme Court, New York County, No. 651786/2011. The
earlier case is Walnut Place LLC et al v. Countrywide Home
Loans Inc et al in the same court, No. 650497/2011.
(Additional reporting by Joe Rauch in Charlotte, North
Carolina, editing by Gerald E. McCormick)