Bond insurer Ambac Assurance Corp. on Monday requested to withdraw from a legal case for an $8.5 billion settlement with Bank of America concerning MBS.
In June 2011 the Bank of New York Mellon, as trustee for the securities, filed a petition with the New York Supreme Court, New York County.
The petition proposed a settlement between holders of RMBS originated by Countrywide Home Loans, on one side, and BofA, on the other side. BofA took over Countrywide in 2008.
The securities were originated from 2004 to 2008.
Blackrock Financial Management, Pacific Investment Management Co., Freddie Mac, Goldman Sachs Asset Management, and several other major investment firms held the mortgage securities.
In the words of BNY Mellon’s petition to the court, “A substantial dispute has arisen concerning the Sellers’ [Countrywide and others’] alleged breaches of representations and warranties in the Governing Agreements, and the Master Servicer’s [Bank of America’s] alleged violations of prudent servicing obligations.”
From November 2010 to June 2011 the investors along with BNY Mellon negotiated with Bank of America to reach a settlement.
“These negotiations sought to avoid the enormous costs of preparing for and pursuing claims in litigation that would involve complex issues of law and fact and a review of files for 530 trusts and hundreds of thousands of loans,” BNY Mellon wrote in its petition.
“The negotiations also sought to avoid the risks and costs of waiting for an uncertain — and perhaps unattainable and unrecoverable — judgment many years from now,” it said.
In August 2011 the New York State attorney general filed suit to block the proposed settlement. The attorney general accused BNY Mellon of breaching its duty to investors with the deal.
The attorney general stated that BNY Mellon could benefit from the proposed settlement.
The settlement is pending court approval.
On April 16 Ambac filed suit against Bank of America over a different batch of soured mortgage-backed securities.
The suit follows one on March 30 in which Ambac sued JPMorgan concerning mortgage-backed securities.
Before the recent recession, Ambac was one of the nation’s largest monoline bond insurers.
When the real estate bubble collapsed, many mortgage-backed securities that Ambac insured failed and it filed for bankruptcy protection from creditors.
In mid-March a federal court approved a bankruptcy plan for Ambac.
The plan cannot go into effect until a settlement is reached between Ambac and the Internal Revenue Service over a disputed tax refund to Ambac.
The two parties have not yet reached a mutually agreeable settlement.
Ambac and Bank of America spokesmen declined to comment for this story,
Bank of New York-Mellon did not respond to a call requesting a comment by press time