Bank of America Corporation

RMBS Trustee Seeks Court Guidance on Distribution of Settlement Proceeds

On February 5, 2016, the Bank of New York Mellon (“BNY Mellon”), in its capacity as trustee of 530 RMBS trusts, filed an Article 77 petition with the Supreme Court of the State of New York requesting instruction as to how it should distribute proceeds from an upcoming $8.5 billion settlement payment from Bank of America Corporation. The settlement payment relates to a 2011 settlement of claims arising from representations and warranties made by Countrywide Financial Corporation and Countrywide Home Loans, Inc. in connection with the 530 RMBS trusts at issue.

The petition highlights a dispute among Certificateholders in the 530 trusts regarding how settlement proceeds should most fairly be disseminated to investors. Among other consideration, the petition concerns the application of “write up” provisions—by which the principal balance on previously written-down certificates is increased—and how these provisions could affect the allocation of proceeds in over-collateralized trusts.  The petition states that the distribution process may create the artificial appearance that a trust’s overcollateralization target was hit, resulting in the unintended “leakage” of settlement proceeds to subordinated Certificateholders, at the expense of the senior tranches.

Petitioners request the court clarify whether BNY Mellon must: (a) pay disbursements first and subsequently adjust the overcollateralization calculation to prevent leakage; (b) pay disbursements first and make no adjustment to the overcollateralization calculation, thereby permitting leakage; or (c) change its settlement disbursement operations to “write up first and pay second.” As BNY Mellon puts it: “the resolution of this question has significant consequences . . . affecting the distribution of potentially billions of dollars.” Verified Petition.

Court Declines to Vacate Jury Verdict in Countrywide FIRREA Lawsuit

On February 3, Judge Jed S. Rakoff of the United States District Court of the Southern District of New York denied Bank of America Corporation’s and Rebecca Mairone’s motion for judgment as a matter of law, or, in the alternative a new trial. The jury found Bank of America and Mairone liable under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) for the sale of mortgage loans to Fannie Mae and Freddie Mac before the financial crisis. Judge Rakoff found that the jury’s October 23, 2013 verdict was supported by sufficient evidence.  Order.

Ambac Sues Countrywide For Alleged Fraud in Connection with $1.7 Billion in RMBS

On December 27, Ambac Assurance Corporation filed a complaint against several Countrywide entities and Bank of America Corporation in New York state court, seeking to recover at least $600 million in damages in connection with claims payments Ambac allegedly made under insurance policies it issued on eight RMBS trusts. Ambac alleges that between 2005 and 2007, Countrywide made false and misleading statements at meetings with Ambac and in prospectus supplements and loan tapes issued in connection with the trusts that induced Ambac to issue its insurance policies. Ambac asserts a cause of action for fraudulent inducement against the Countrywide entities and a cause of action for successor liability against Bank of America.  Complaint.

Central District of California Dismisses FDIC’s Federal and State Securities Claims In Connection With RMBS Purchases

On August 26, Judge Mariana R. Pfaelzer of the U.S. District Court for the Central District Court of California dismissed with prejudice a suit brought by the Federal Deposit Insurance Corporation (FDIC) against Countrywide Securities Corporation, Countrywide Financial Corporation, Bank of America Corporation, Deutsche Bank Securities, Inc. and Goldman, Sachs & Co.  In its amended complaint, the FDIC alleged that the offering documents for eight RMBS certificates that Guaranty Bank purchased between July 2005 and April 2006 contained material misstatements in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933 and Article 581-33 of the Texas Securities Act.  It also brought claims under Section 15 of the 33 Act against Countrywide.  The FDIC was appointed as receiver for Guaranty Bank in August 2009 and filed suit on August 17, 2012.  The court followed its earlier decisions in dismissing the FDIC’s claims as time-barred by the three year statute of repose under the ’33 Act.  The court also held that the extender provision of FIRREA does not toll or pre-empt state statutes of repose, and therefore dismissed the FDIC’s claims under the Texas Securities Act as time-barred.  Decision.