A federal judge has ruled the massive $8.5 billion settlement between Bank of America and several large investors who lost billions on private label MBS will be heard in federal court.
The ruling, which came mid-week, goes against B of A and Bank of New York Mellon Corp., the trustee in the case, which had both wanted the settlement to remain in New York state court where they had initially filed it.
The original settlement, struck in late June, needs a judge to rule whether or not the $8.5 billion is a fair and reasonable amount of money to settle claims over nonprime loans that originally totaled $424 billion, according to a report by Dow Jones.
Investors, including BlackRock and the Federal Reserve Bank of New York, had pushed B of A to the deal, using Bank of New York Mellon as their legal trustee, and also wanted the case to remain in state court.
But since the pact was announced, it has come under fire from other investors and even law enforcement officials who believe the settlement amount is too small.
The bondholders that moved the settlement to federal court have been joined by dozens of other investors who may be impacted by the settlement in seeking a voice in the proceedings.
The FDIC, Goldman Sachs, and the New York attorney general have all filed to be a party to the case. New York, acting on behalf of pension funds for public workers, has also sued Bank of New York Mellon over its role in the settlement.
For B of A, the settlement was supposed to mark a watershed in its efforts to put its residential mortgage problems behind it.