ALBANY, N.Y. - A judge on Friday approved most of the $8.5 billion Bank of America settlement over investor losses from mortgage-backed securities, concluding that trustee Bank of New York Mellon acted reasonably with one exception.
Critics of the settlement had argued
that it represented only a fraction of the losses.
State Supreme Court Justice Barbara
Kapnick wrote that BNY Mellon "did not abuse its discretion" in
entering the 2011 settlement agreement and did not act in bad faith. However,
she said the trustee acted unreasonably in settling loan modification claims without
investigating their potential worth. She approved the settlement excluding
"The uncertainty and risk
associated with litigation played a large role in the trustee's decision,"
Kapnick wrote. "It is also clear that the trustee placed considerable
weight on the fact that the settlement was supported by 22 institutional
investors, including arms of the federal government, prominent investment
managers acting as fiduciaries for their clients, and institutions managing
their own money."
The offers and demands exchanged in
negotiating the settlement ranged from $1.5 billion from Bank of America to $16
billion by the institutional investors, Kapnick noted.
Bank of America spokesman Lawrence
Grayson said Friday the company was carefully reviewing the 54-page ruling.
Calls to BNY Mellon were not returned.
According to court papers, the claims
arose from "a massive collapse in value" of mortgage loans in 530 New
York trusts in 2007 and 2008. The claims were against trust creator Countrywide
Financial Corp. and trust servicer Bank of America, which bought Countrywide in
Big insurer American International
Group Inc., one of the investors in the securities, had objected to the
settlement on grounds that BNY Mellon failed to make a strong enough effort to
recover money for the investors.
In a statement, AIG said parts of
Kapnick's ruling "are not supported by the record and ... set a dangerous
precedent that could eliminate important protections for investors." New
York-based AIG said the case is "very far from over" because the
settlement won't take effect until several potential appeals of the ruling are
AIG said it was pleased, however, with
Kapnick's decision to allow billions of dollars in investors' claims on
home-loan modifications by Bank of America to go forward because in that
instance Bank of New York Mellon settled the claims without sufficiently
examining the issue.