Bank of America Corp. has begun potential settlement discussions with large institutional investors who bought MBS that later underperformed, causing losses at these entities, according to a report in The Wall Street Journal.

The newspaper, citing sources "familiar with the situation" identified the MBS investors as the Federal Reserve Bank of New York, Freddie Mac, Blackrock, and PIMCO.

The investors also apparently are talking with Bank of New York.

In October, these investors began exploring the possibility of suing BofA over what they allege is the poor quality of "master servicing" on the MBS done by Countrywide Financial Corp. (CFC). BofA bought CFC in August 2008, inheriting all its troubled "legacy assets" and related issues.

These investors want the bank to repurchase troubled bonds, a move that could have cost BofA billions of dollars. (CFC was a top-ranked issuer of nonprime MBS during the housing boom.)

Initially, BofA CEO Brian Moynihan vowed to fight these investor repurchase claims regarding flawed mortgages, but it appears the bank's position is loosening.

Late Wednesday, a spokesman for BofA had not returned a telephone call about the matter. Kathy Patrick, an attorney representing the investors, told National Mortgage News late Wednesday that while she could not characterize the nature of the talks, "We're pleased that we've opened a constructive dialogue with Bank of America, and Bank of New York." (She did not mention the other investors mentioned in the WSJ story.)

In a related development, BofA issued a statement saying that the counsel for BAC Home Loans Servicing and Gibbs & Bruns on behalf of certain investors including those who signed the previously reported Oct. 18 letter pertaining to private label RMBS and the counsel for The Bank of New York Mellon as trustee have agreed to extend the time periods started by the said letter.

The statement said that this extension will permit the parties to continue constructive
dialogue regarding the concerns raised. The agreement the securitizations listed by the bank in its release. For a copy of BofA's release please click this link.

According to Jeff Horowitz, reporter for ASR sister publication American Banker, The notice, issued shortly before the 60-day deadline initially set for the company and trustee Bank of New York Mellon to respond, contrasts with the company's earlier dismissal of investor complaints.

Horowitz reported that shortly after the letter was first sent, BofA Chief Executive Officer Brian Moynihan announced that the bank would respond to investor repurchase attempts with "hand to hand combat" over individual loan files.

The comments, Horowitz reported, seemed to preclude any possibility of a wholesale level redress of investor grievances, which range from a failure to repurchase ineligible loans to waste and self-dealing in the bank's servicing procedures.

"If you think about people who come back and say, I bought a Chevy Vega, but I want it to be a Mercedes with a 12-cylinder, we're not putting up with that," Moynihan said on the company's third quarter earnings call.

He has since adopted a more subdued tone.

"At the end of the day, we'll pay for the things that Countrywide did," he said last month, referencing the behemoth mortgage servicer that BofA acquired in 2008.

According to BofA's statement on Wednesday, "the claims and defenses of all parties are preserved."


Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.