BofA Announces $8.5 Billion Securitization Settlement

Posted by revolt | BofA Announces $8.5 Billion Securitization Settlement | Friday 16 March 2012 8:14 am

Bank of America Announces Massive $8.5 Billion Mortgage-Backed Securities Settlement

Posted on June 29, 2011 by Kevin LaCroix

The Internet is buzzing over Bank of America’s June 29, 2011announcement (here) of its eye-popping $8.5 billion settlement to resolve “nearly all” of the repurchase claims involving legacy Countrywide-issued residential mortgage-backed securities (RMBS).

The company’s press release and accompanying June 29, 2011 filing on form 8-K contain a lot of information about the underlying dispute and the settlement, but the deal has many moving parts and there is a lot to absorb here.

From a survey of the settlement documents, it appears that, among other things, the settlement resolves only the investors’ repurchase claims under the documents governing the securities but apparently does not resolve the investors’ separate claims under the federal securities laws, as discussed below.

The deal itself involves a settlement with the Bank of New York Mellon as trustee to 530 RMBS trusts having an original principal balance of $424 billion and unpaid principal balance of $221 billion. According to the Wall Street Journal’s account of the deal, the dispute had begun with a demand last October from a law firm representing 22 institutional investors.

The investors had demanded that BofA repurchase mortgages that had been packaged into securities, basing their demand on allegations of “breaches of representations and warranties contained in the Governing Agreements with respect to the Covered Trusts (including alleged failure to comply with underwriting guidelines (including limitations on underwriting exceptions), to comply with required loan-to-value and debt-to-income ratios, to ensure appropriate appraisals of mortgaged properties, and to verify appropriate owner-occupancy status), and of the repurchase provisions contained in the Governing Agreements. ”Although the original demand was on behalf only of the 22 investors, the settlement is on behalf of virtually all investors in the trusts.

The settlement agreement can be found here. The plaintiffs’ firms press June 29, 2011 press release about the settlement can be found here. The basic framework of the settlement is straightforward – BofA will pay $8.5 billion to settle the claims. But there is more to it than that.

First, the settlement requires court approval. The settlement agreement explains that the Trustee will initiate an “Article 77 proceeding” in order to obtain the necessary approval. An article 77 proceeding is an action provided for under the New York Civil Practice Law and Rules, refer here. All costs associated with the Article 77 proceedings are to be borne by BofA. The 8-K specifically warns that given the number of trusts and investors and the complexity of the settlement “it is not possible to predict whether and to what extent challenges will be made to the settlement.” The settlement is also conditioned on the receipt of tax rulings from the IRS and New York.

Second, on its face, the settlement involves a lot more than $8.5 billion. The 8-K says that” in addition to” the $8.5 billion settlement payment, BofA is “obligated to pay attorneys’ fees and costs to the Investor Group’s counsel as well as all fees and expenses incurred by the Trustee in connection with the settlement, including fees and expenses related to obtaining final court approval.” According to the exhibits to the settlement agreement, the plaintiffs’ firm is to receive $85 million in fees and costs.. As Susan Beck points out on the Am Law Litigation Daily, that may only represent one percent of the settlement, but it is still a respectable chunk of change.

Third, although the settlement is intended to be broad, there are a number of matters that the settlement does not resolve. For example, the settlement does not cover “a small number” of legacy transactions, including six transactions in which BNY Mellon did not act as Trustee.

Perhaps even more interestingly, the settlement does not resolve the investors’ claims under the securities laws. As the 8-K states, “because the settlement is with the Trustee on behalf of the Covered Trusts and releases rights under the governing agreements for the Covered Trusts, the settlement does not release investors’ securities law or fraud claims based upon disclosures made in connection with their decision to purchase, sell or hold securities issued by the trusts.”

Specifically, Paragraph 10 of the Settlement Agreement states that “release and waiver in Paragraph 9 does not include any direct claims held by Investors or their clients that do not seek to enforce any rights under the terms of the Governing Agreements but rather are based on disclosures made (or failed to be made) in connection with their decision to purchase, sell, or hold securities issued by any Covered Trust, including claims under the securities or anti-fraud laws of the United States or of any state; provided, however, that the question of the extent to which any payment made or benefit conferred pursuant to this Settlement Agreement may constitute an offset or credit against, or a reduction in the gross amount of, any such claim shall be determined in the action in which such claim is raised, and the Parties reserve all rights with respect to the position they may take on that question in those actions and acknowledge that all other Persons similarly reserve such rights.”

Fourth, beyond the $8.5 billion settlement, BofA will also record an additional 2Q11 charge of $5.5 billion additional representations and warranties exposure to non-government sponsored entities “and to a lesser extent GSE exposures.” Despite the sizeable amount of this charge, the 8-K specifies that the amount is not intended to include a variety of other costs, including “potential claims under securities laws.” The 8-K adds that the company is “not able to reasonably estimate the amount of any possible loss” concerning these other matters (including securities claims), noting that “such loss could be material.”

The settlement documents do not indicate whether any portion of the settlement will be funded by insurance. Given the nature of the settlement and of the underlying claims, the settlement would not appear to be a matter than would involve D&O insurance. At least one reader has raised the question whether or not the settlement might involve BofA’s E&O insurance. Much would depend on the nature of the coverage the bank has purchased. I welcome readers’ thoughts on the possibility of insurance coverage availability for this type of a settlement.

In any event, as massive as the settlement and the separate charge are, they do not and not intended to relate to the investor claims asserted under federal securities laws or state laws. As for those claims, I guess we will all just have to stay tuned…

Readers will of course recall that the parties to the securities class action lawsuit brought by shareholders of Countrywide against Countrywide and certain of its directors and officers previously announced a more than $600 million settlement. There are many other pending suits brought on behalf of investors who purchased Countrywide-issued mortgage backed securities.

UPDATE: There is even more to this deal than I discussed above. If you have read this far, you will really want to take the time to read Susan Beck’s excellent detailed analysis of the settlement in the Am Law LItigation Daily.

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Foreclosure Settlement Worth $18 Million to Gardens Woman

Posted by revolt | Foreclosure Settlement Worth $18 Million to Gardens Woman | Friday 16 March 2012 7:23 am

Foreclosure Settlement Worth $18 Million to Gardens Woman

By: Kimberly Miller The Palm Beach Post, Fla. (MCT)) — PALM BEACH GARDENS —

Tucked into the landmark $25 billion national foreclosure settlement filed this week in federal court is an $18 million payday for Palm Beach Gardens home­owner Lynn Szymoniak.

The 63-year-old attorney specializes in white collar crime cases and was featured last year on the CBS news show 60 Minutes for her role in uncovering mortgage and foreclosure fraud. She has fought the banks since her own foreclosure saga began in 2008.

On Tuesday, she said the settlement is the culmination of years of work combing through foreclosure documents to piece together how the banks took illegal shortcuts to repossess people’s homes.

“The $18 million is real, but it seems so surreal,” Szymoniak said. “I’ve worked very, very hard for this.”

Her award is included in a $95 million agreement reached among the U.S. Attorney for the District of South Carolina and Bank of America, JPMorgan Chase, Wells Fargo and Citigroup.

The agreement is part of an overall federal recovery written into the $25 billion nationwide settlement between five banks and 49 state attorneys general. The settlement also includes Ally Financial.

“It’s definitely been worth the fight,” said Szymoniak, whose Palm Beach Gardens home went into foreclosure after a dispute over her adjustable rate mortgage. “I don’t understand how if you see something like this happening that you wouldn’t fight to make it right.”

Szymoniak filed her lawsuit as a whistle-blower under the federal False Claims Act, which allows the government to bring civil actions against entities that knowingly use or cause the use of false documents to obtain money from the government. The whistle-blower provision allows for the filer to receive between 15 percent and 30 percent of the proceeds won by the government.

The lawsuit alleged that banks undertook a nationwide practice of failing to obtain required mortgage assignments, resulting in servicing misconduct and the use of false assignments to submit federal housing administration mortgage insurance claims.

A mortgage assignment is a document used to attest to the true owner of a mortgage, which proves that a bank has the right to foreclose on a home.

Mortgage assignments became necessary following the real estate sales run-up and the banking industry’s creation of the Mortgage Electronic Registration System, or MERS, which muddied the chain of ownership. MERS is used to internally track the transfer, sale or securitization of loans instead of each move being recorded in the public record. With MERS, banks also avoid paying recording fees.

When a bank forecloses on a home, it may need a mortgage assignment from MERS or another lender to prove ownership.

In the rush to foreclose on homes, banks, and some law firms, took shortcuts that led to robo-signed assignments.

Szymoniak identified one of the most prolific robo-signers, a woman named Linda Green, who once worked for a subsidiary of the Jacksonville-based company Lender Processing Services.

“By this agreement we are making an important first step to hold mortgage servicers accountable for fraudulent and abusive practices not only in South Carolina but nationwide,” said Bill Nettles, U.S. Attorney for the District of South Carolina.

Szymoniak, who is limited in what she can reveal because of continued litigation, said she plans to pay off her mortgage with her settlement money and donate to charities.

Nettles said Szymoniak was working with several attorneys who filed the case in South Carolina because the state has made a commitment to pursue these kinds of lawsuits. Because the practice was happening nationally, it could have been filed in any state, he said.

“We are able to move them through a little faster than bigger districts,” said Fran Trapp, assistant U.S. attorney for the District of South Carolina.

St. Petersburg foreclosure defense attorney Matt Weidner said he doesn’t believe Szymoniak would have received the support to pursue the case in Florida.

“Our state leadership has made it absolutely apparent they have no interest in going after the banks at all,” he said. “To an unfortunate degree, the courts have also allowed the banks to run roughshod over consumers.”

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$95 Million Settlement For Alleged False Mortgage Assignments

Posted by revolt | $95 Million Settlement For Alleged False Mortgage Assignments | Friday 16 March 2012 7:18 am

$95 Million Settlement with the Nation’s Five Largest Mortgage Servicers Partially Resolves South Carolina False Claims Act Lawsuit

Posted by: Staff On: March 12th, 2012

Bill Nettle, United States Attorney
District of South Carolina

COLUMBIA, South Carolina —- A $95 million settlement with the nation’s four largest mortgage servicers was announced today by United States Attorney Bill Nettles. Bank of America Corporation, J.P. Morgan Chase & Co., Wells Fargo & Company, and Citigroup Inc. agreed to the settlement to address allegations that the defendants participated in a nationwide practice of failing to obtain required mortgage assignments which resulted in servicing misconduct, and using false assignments to submit Federal Housing Administration mortgage insurance claims, all in violation of the federal False Claims Act, 31 U.S.C. § 3729. This is the largest False Claims Act settlement ever obtained by the District of South Carolina. The settlement was reached as part of the $25 billion dollar global resolution between the same defendants, the United States of America, the state attorneys general, and others.

The United States and the state attorneys general filed today in the U.S. District Court in the District of Columbia proposed consent judgments with Bank of America Corporation, J.P. Morgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc., to resolve violations of state and federal law. Included in the proposed settlement agreements, is the partial settlement for four of the defendants of allegations that the United States Attorney’s Office for the District of South Carolina began investigating in the Spring of 2010. In particular, the government investigated allegations that the defendants participated in a pervasive nationwide scheme involving the wholesale fabrication of mortgage assignments and other servicing abuses.

The False Claims Act allows the government to bring civil actions against entities that knowingly use or cause the use of false documents to obtain money from the government or to conceal an obligation to pay money to the government. The lawsuit in this case was initially filed by Lynn Szymoniak under the qui tam or whistleblower provision of the False Claims Act. This provision entitles a private person to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly violated the False Claims Act. Under the False Claims Act, the private person, also known as a “whistleblower,” is entitled to a share of the government’s recovery. In this matter, the whistleblower will receive $18 million from the proceeds of the settlement.

“Whistleblowers play an important role in protecting taxpayer funds from fraud and abuse,” said U.S. Attorney Nettles. “Settlements like this one help maintain the integrity of the federal mortgage servicing process.”

“By this agreement we are making an important first step to hold mortgage servicers accountable for fraudulent and abusive practices not only in South Carolina but nationwide. I am proud of the tireless work of this office to investigate this case across the country,” said U.S. Attorney Nettles.

“We see this historic settlement as one of national importance as our success in this case marks a precedent setting application of the False Claims Act to complex financial fraud,” said U.S. Attorney Nettles. “It also demonstrates the role that whistleblowers can play in working with the government to return dollars to the federal treasury and to expose wrongdoing.”

“We are very pleased by this settlement but at the same time our investigation is ongoing as we continue to ascertain the full magnitude of wrong doing and to seek redress for the United States Government,” said U.S. Attorney Nettles.

This settlement was the result of a coordinated effort by Assistant United States Attorneys Fran Trapp and Jennifer Aldrich of the U.S. Attorney’s Office for the District of South Carolina along with the Commercial Litigation Branch of the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Western District of North Carolina and the Offices of Inspector General and legal counsel departments for HUD, the Treasury and the Federal Reserve in investigating the allegations.

Lynn Szymoniak, the whistleblower, was represented by South Carolina attorney Richard Harpootlian along with the firm of Grant & Eisenhofer (G&E) including firm partner Reuben Guttman, of the Washington, DC office, who heads the G&E False Claims Litigation Group and firm partner James Sabella of the New York office, who is a senior member of the G&E Securities Fraud Litigation Group. Kenneth Suggs and Howard Janet of Janet, Jenner, & Suggs in Maryland and South Carolina also represented Ms. Szymoniak.

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