Bank of America's $8 Billion Mortgage Settlement to Go Before Judge After Two Years Wait

After two years, Bank of America's BAC $8 billion mortgage settlement, related to securities it acquired in its purchase of Countrywide Financial, will be reviewed by a New York judge.

The settlement is part of the company's strategy to resolve outstanding liabilities from its infamous purchase of Countrywide in 2008.

Justice Barbara Kapnick is set to consider the settlement today in State Supreme Court in Manhattan two years after the lender agreed to an $8 billion settlement to resolve claims over mortgages that were bundled into securities. The settlement has the backing of large investors such as Blackrock BLK but faces opposition for investors including American International Group AIG.

The agreement has gone through two years of litigation since it was filed in court in June 2011 and was scheduled to be considered at a May 30 hearing but may face another postponement today. An attorney for AIG said in a May 31 letter to the court that opponents didn't have all the evidence they need to present their case.

Resolving Liabilities

For Bank of America CEO Brian Moynihan, resolving the settlement and cleaning up one of the biggest liabilities for the company would go a long way to fulfilling his strategy of moving on from the past mistakes at the company. Approval of the settlement would help the company to distance itself from the past and focus on the future.

Should the settlement be considered and approved, it would mark the latest such deal that the bank has reached with creditors this year. Earlier in 2013, Bank of America reached an $11.7 billion deal with Fannie Mae and more recently in May, concluded a $1.7 billion deal with MBIA Inc. MBI.

"Pennies-on-the-Dollar"

Private investors such as AIG are in opposition to the deal as they claim that Bank of America is offering little in the way of compensation to investors. They call it a “pennies-on-the-dollar bargain” for the bank because losses to the securitization trusts at issue in the case are expected to be more than $100 billion.

Importantly, the investors do not want to reclaim monies in a lawsuit and are looking to do so through a settlement. In pursuing a lawsuit rather than the settlement, investors would have to overcome the defense that Bank of America isn't liable for the actions of Countrywide. In the MBIA case, Bank of America contended that only Countrywide would have been liable.

Minority in Opposition

Proponents of the settlement on the investor side have openly called AIG and its supported a "vocal minority" as big players such as Blackrock, PIMCO, Goldman Sachs Asset ManagementGS, and Metlife MET all are in support of the deal. Out of tens of thousands of investors, only 10 filed objections, they said in court papers, and many of them, including New York-based AIG, are pursuing separate litigation against Bank of America.

“Rejection of this landmark settlement would plunge thousands of innocent investors and hundreds of trusts into decades of potentially fruitless litigation that could well end in Countrywide's bankruptcy and a resulting scramble among its creditors over assets which are far less than the $8.5 billion payment,” they said.