February 5, 2016 / 5:46 PM / 3 years ago

Judge delays payouts in BofA $8.5 bln mortgage bond settlement

NEW YORK (Reuters) - A judge on Friday delayed payouts to investors from Bank of America Corp’s $8.5 billion mortgage securities settlement after the trustee overseeing the securities asked for instructions on how to split the proceeds among investors.

Justice Saliann Scarpulla of New York state court in Manhattan signed an order that the money be held in escrow while investors have an opportunity to voice their views of how to calculate the distributions.

In a filing earlier on Friday, Bank of New York Mellon, the trustee, requested court intervention, saying competing interpretations of the methodology was delaying the distribution of billions of dollars.

The trustee said it expects to receive the $8.5 billion from Bank of America on Feb. 10, but sought an order on the distribution formula before routing the cash to the 530 residential mortgage-backed securities trusts involved.

Kevin Heine, a spokesman for BNY Mellon, said the trustee’s action was consistent with its “contractual obligations to properly distribute payments for the benefit of all investors.”

Attorney Kathy Patrick, who represents the investor group that helped negotiate the deal, had no immediate comment on the filing.

The issue, according to BNY Mellon, is whether each trust should first count the money it will receive from Bank of America as a decrease in the trust’s liabilities to investors or as an increase in the trust’s assets.

In some trusts, the order could result in investors in less- secure investor classes receiving payouts that otherwise would go to more senior ones, the filing said.

Scarpulla set a conference for Feb. 23, and a March 4 deadline for investors to file papers if they want to weigh in.

A group of 22 institutional investors, including BlackRock Inc., MetLife Inc and Allianz SE’s Pacific Investment Management Co, helped negotiate the deal in 2011. It resolves claims involving $174 billion of mortgage securities issued by the former Countrywide Financial Corp., which was acquired by Bank of America in 2008.

A spokesman for MetLife declined to comment. Allianz and BlackRock did not immediately respond to requests for comment.

BNY Mellon was granted judicial approval of the proposed settlement in April after a lengthy court battle. The Internal Revenue Service granted its approval in October.

The case is In the Matter of the Application of The Bank of New York Mellon, as trustee, New York State Supreme Court, New York County, No. 150973/2016.

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