A judge on Friday approved most of the US$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 Bank of New York 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 those claims.
“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 judge wrote.
The offers and demands exchanged in negotiating the settlement ranged from US$1.5 billion from Bank of America to US$16 billion by the institutional investors, Kapnick said.
“We are pleased that the court approved the settlement,” Bank of America spokesman Lawrence Grayson said. “We believe any outstanding issues raised in the opinion can be addressed without undue delay.”
Bank of New York Mellon spokesman Kevin Heine said the company is “extremely pleased that the court has vindicated the trustees’ actions by overwhelmingly approving the settlement.”
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 2008.