Bank of America’s proposed $8.5 billion settlement with investors who purchased allegedly faulty mortgage securities from the bank’s Countrywide unit during the financial crisis has been delayed, Reuters reported Feb. 5.
Justice Saliann Scarpulla of New York state court in Manhattan took over the case Feb. 4 from Justice Barbara Kapnick who originally approved the settlement Jan. 31 and who ruled that the settlement would take effect Feb. 7. Kapnick was promoted to a state appeals court and is no longer a trial court judge.
American International Group, the leading plaintiff in the case and an opponent of the settlement, requested a delay once Scarpulla took over the case. Scarpulla postponed entering a final judgment until at least Feb. 19, Reuters reported.
Bank of America originally agreed to the multibillion dollar settlement in June 2011 in an effort to resolve investor claims for 530 faulty mortgage-backed securities issued by Countrywide before the bank assumed control of the firm in 2008.
Many investors involved in the case have indicated that the settlement would not adequately compensate them for losses. However, 22 plaintiffs supported the settlement, including BlackRock, MetLife and Alliaz SE’s Pacific Investment Management.
When Kapnick first issued her decision, she noted that the trustee representing the investors, Bank of New York Mellon, had acted mainly in good faith in entering into the settlement, but she withheld judgment on one part of the settlement, claiming the trustee had not investigated investor claims regarding Bank of America’s obligation to repurchase modified loans, Reuters reported.
AIG asked Scarpulla to refrain from final judgment until further investigation was conducted into how losses should be calculated and the settlement funds distributed.
Kenneth Warner, an attorney representing the investors who support the settlement, wrote in a letter to the judge that delaying a decision would be unfairly “prejudicial to the thousands of certificate holders who are waiting for the settlement proceeds to be distributed,” Reuters reported.