Kind of a big deal in the whole Countrywide and Bank of America mortgage mess happened late this afternoon. The Attorney General of New York has filed a fraud suit against the trustee of the mortgage pool, Bank of New Your.
Back when Countrywide was bought, B of A really got a pig in a poke. They bought the company and the company had not done what it needed to in order legally securitize the mortgage pools they owned. The basic problem is the one we’ve seen over and over again in this shit pile, they did not have the proper documentation for many of the loans. But they went ahead and sold them to investors, to the tune of 182.5 billion (as in 182,500 million).
When it all went south B of A was on the hook, but they had bought Countrywide at a distressed state and have entered into negotiations with the securities holders. They got this incredibly sweet deal, they would pay 8.5 billion, about a nickel on the dollar of the value of the securities.
This deal was brokered by Bank of New York. Which is part of the problem, you see, B of A promised to pay all the expenses and any losses that Bank of New York might incur. That is so uncommon as to raise a lot of eyebrows. As Trustee Bank of New York was supposed to look out for the investors, not be in bed with B of A.
Which is where the real problems start. From the New York Times article:
Mr. Schneiderman’s contention that Bank of New York breached its duties to investors is significant because a trustee that agrees to oversee loan pools like those issued by Countrywide must abide by the rules governing the securities. Such rules require that lenders deliver to the trust complete and original mortgage documents for each loan in a pool, for example, and require that the trustee notify investors when such loan documents are missing.
Bank of New York led investors in the Countrywide pools to believe that the lender had in fact delivered complete and adequate mortgage files for each loan as was required, the lawsuit said. The bank also misled investors by confirming that loan files relating to hundreds of thousands of mortgages were complete.
For anyone following the mortgage fraud problems this sounds pretty familiar. Bank of New York is accused of the same kind of behavior that the “robo-signers” were. They are claiming that they have completed all the documentation required. They are insisting on it as matter of law. Yet when the AG started investigating random mortgages they found more and more that were not indeed completed.
Read the rest of this entry →