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The Bank of America (BAC) and its Countrywide subsidiaries have entered a Settlement Agreement with the Bank of New York as Trustee for 424 different RMBSs, which was filed this morning with the SEC. Dday has the early reports here. Here’s what it really does.

1. It settles claims that BAC and Countrywide breached their duties with respect to a) origination, sale, or delivery of loans to the Trustee; b) documentation of mortgage loans, including issues with respect to “…alleged defective, incomplete, or non-existent documentation, as well as issues arising out of or relating to recordation, title, assignment, or any other matter relating to legal enforceability of a Mortgage or Mortgage Note,”; and servicing of mortgage loans. See ¶9, starting with clause (i).

2. It sets specific servicing requirements for all remaining loans in each pool.

3. It requires BAC to produce an exceptions list showing documentation errors, and to work on curing those errors, reporting monthly.

4. If a document is still on the revised exceptions list, with both a documentation error and a title insurance error, when an RMBS tries to foreclose, and if the RMBS is unable to foreclose because of documentation errors, and if no insurance is available, then BAC has to pay the entire loss.

Here are two things it doesn’t do;

1. It doesn’t cover investor claims for securities fraud and all related claims of non-disclosure. The parties couldn’t even settle the question of whether payments under this settlement are a setoff against fraud claims. See ¶10.

2. It does not cover claims investors in RMBSs might have against the Bank of New York as Trustee for accepting bad instruments.

There are some interesting issues on documentation errors. BAC does not have to list a MERS loan on the exceptions report for title policy problems (or maybe at all; the document isn’t clear). ¶6(c) Only loans on the exception list for both document and title insurance issues are entitled to be paid off if the RMBS cannot foreclose. BAC won’t have to pay off on MERS loans with inadequate documentation. That seems odd, since MERS loans are no less likely to have enforcement difficulties than any other loan. Perhaps the settlement payment is thought to be enough to cover the MERS loan documentation errors.

The settlement is based on the theory that documentation errors can be cured at this late date. Yves Smith has argued convincingly that the window for cure of most documentation errors closed years ago.

The deal does not protect Bank of New York as Trustee from suits over its own failure to comply with the documentation requirements of the Pooling and Servicing Agreements (the contracts that create the RMBSs). It has proven difficult for the investors to get together to sue both trustees and the underwriters who sold the RMBSs. This deal requires the Bank of New York to obtain a court order approving the deal. Surely all of the investors are entitled to notice. This is a great chance for them and their lawyers to discuss common interests. If the investors work together, maybe they can do better than pennies on the dollar.

And Gawker has it right: Bank of America Will Make Amends for Destroying Economy by Paying Billions to Other Banks. One of those banks is Goldman Sachs.

Update: Cynthia Kouril points out that the documentation section, ¶6, may be designed to hide the extent of lousy documentation in MERS loans. The Settlement Agreement says that BAC has produced three reports of documentation errors in connection with the negotiations. ¶6(a)(vi). An enterprising person with standing to object, like, say the New York Attorney General, Eric Schneiderman, could demand production of those and maybe get a quick read on how bad the MERS loans look. That might be a real eye-popper.