The Supreme Court of the State of New York held a hearing on the $8.5 billion Countrywide Financial Corp. settlement case this afternoon.

According to a just-released Barclays Capital report, a key determination in this case is whether BNY Mellon can pursue an Article 77 proceeding or whether the case should be heard via a plenary action.

The report said that the judge decided to go ahead with the Article 77 proceeding. According to Barclays, this narrows the scope of discovery and keeps the proceeding shorter than otherwise. 

Analysts said that the judge still possesses a some discretion on how detailed the discovery can be. More details on the final review/discovery process will be available in early May.

The other issue in this case was whether the NY and Delaware attorneys general would be admitted as intervenors. This is key to the case's timing since it can extend discovery to issues including whether the servicing changes proposed are beneficial to borrowers and/or if the settlement amount is fair payment. No immediate decision was made, although a final decision is likely in the coming weeks.

Overall, Barclays analysts considered the court's decision to be somewhat positive since the judge is allowing the case to proceed through an Article 77 procedure.

A final decision is probably not going to extend beyond one to two years, which is positive, Barclays analysts stated. But, it seems likely that even under an Article 77 proceeding, the judge might have a somewhat broader discovery process than BNY had proposed.

It seems that the base case for the cash coming into the transactions is expected in the middle of 2013. The chances of a very long or short discovery process has somewhat lessened, Barclays analysts said.

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