A group of bond investors on Monday sued Bank of America-owned Countrywide Financial demanding that Countrywide buy every mortgage loan for which it agrees to reduce the payments under a predatory lending settlement agreement.
Countrywide and its Bank of America parent would be liable to pay hundreds of trusts a total of about $80 billion for loans it modifies, said lawyers for the plaintiffs who filed the complaint in New York State Supreme Court.
Countrywide, ensnared by the subprime mortgage crisis, was the largest U.S. mortgage lender before Bank of America bought it for $2.5 billion on July 1. Under an agreement announced in October with 15 state attorneys general, Countrywide will modify mortgages for about 400,000 homeowners to settle allegations of predatory lending.
A spokeswoman for Bank of America’s mortgage division could not immediately be reached for comment on the lawsuit filed on behalf of Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC.
The complaint said Countrywide does not plan to bear the $8.4 billion cost of the loan modification but to shift that cost to 374 trusts into which its loans were securitized, harming bond investors.
The lawsuit relates to two series of securitizations known as CWL and CWALT. Countrywide has denied it is required to repurchase all loans in the these two securitizations that it modifies, the complaint said.
It said the plaintiffs do not oppose the settlement between the attorneys general and Countrywide but seek a declaration from the court that the lender "is required to purchase any loan on which it agrees to reduce the payments."
The complaint also said that if the trusts "are forced to absorb the reduction in payments occasioned by Countrywide’s settlement of the allegations against it, then the value of the securities that those trusts sold to investors will decline."
The October deal calls for Countrywide to modify at least 50,000 mortgage loans from Monday, the day the mortgage modification program began, to March 31 next year, lawyers for the bond investors said. They estimated that the average unpaid principal balance of the loans is approximately $200,000.
