Judge Reject’s AIG’s Bid to Delay $8.5B Billion Mortgage Backed-Securities Settlement with Bank of America Corp. “Hostage”

Less than three weeks after a judge approved the $8.5 billion mortgage securities settlement between Bank of America Corp. (BAC) and investors, another judge has rejected insurance giant American International Group’s (AG) efforts to delay the deal over its objections that loan modifications were not included in the agreement. Supporters of the mortgage-backed securities deal had accused the insurer of holding the deal “hostage.”

AIG is one of the investors in the over 500 mortgage securities trusts involved in this case. In total there are 22 institutional investors, including BlackRock Financial Management Inc. (BLK), Goldman Sachs Asset Management LP, ING Capital LLC, and Invesco Advisers, Inc.

The insurance giant opposes the settlement and contends that it isn’t convinced that the agreement will offer enough compensation for the losses sustained. AIG and other objectors are also worried that the ruling could result in additional securities lawsuits related to modified loan claims.

New York State Supreme Court Justice Barbara Kapnick, the judge that approved the MBS settlement, decided not to include the claims that are arguing that the bank was obligated to buy back modified loans because she believed that Bank of New York Mellon Corp. (BK), the trustee, did not evaluate them properly.

It was nearly three years ago in June 2011 that Bank of America agreed to resolve investor claims over their purchase of $174 billion of MBS that were issued by Countrywide Financial prior to the US crisis. The investors claimed that Countrywide, which Bank of America acquired in 2008, misrepresented the underlying home mortgages’ quality. Their investments eventually failed.

Now, Justice Saliann Scarpulla, who took over the securities case from Kapnick, is refusing to delay entry of the judgment. She said objectors could make an appeal if they wanted but that it was not for her to stay the case. AIG says it will appeal.

The insurer and Bank of America have yet to resolve another mortgage securities case, also filed in 2011 for over $10 billion. In that MBS fraud lawsuit, AIG says it was cheated when the bank sold it $28 billion of overvalued residential mortgage-backed securities between 2005 and 2007.

Bank of America has denied the accusations. It alleges that AIG acted “recklessly” by pursuing investments that touted high returns The bank believes that the insurer is sophisticated enough to have known about the risks it was getting into.

The SSEK Partners Group
Nearly six years after the financial crisis, our mortgage-backed securities lawyers are continuing to work with investors who sustained losses from the 2008 economic crisis because of negligence or carelessness on the part of a brokerage firm, broker, investment adviser, and others. Contact the SSEK Partners Group today. We would be happy to offer you a free, no obligation case assessment. We represent institutional investors and high net worth individuals.

Judge Refuses AIG Bid to Delay Bank of America $8.5B Settlement, Insurance Journal, February 19, 2014

AIG holding BofA $8.5 billion settlement ‘hostage,’ investors say, Reuters, February 18, 2014

AIG Sues Bank Of America For More Than $10B Over Mortgage Securities, Huffington Post, August 8, 2011