Investors Proceeding with Countrywide Lawsuit
New York- The plaintiff's law firm of Grais & Ellsworth is proceeding with a lawsuit filed against Countrywide Financial Corporation on behalf of investors in 374 mortgage securitization trusts.
The suit, filed in December, seeks to force Countrywide, now owned by Bank of America, to purchase at par from the securitization trusts loans that are being modified because of a settlement with state attorneys general. The law firm of O'Melveny & Myers, representing Bank of America, urged Mr. Grais' firm to withdraw the lawsuit, saying that the settlement not only will keep more Countrywide borrowers in their homes, it will represent the best interests of investors as well. In a letter, O'Melveny & Myers said that the lawsuit on behalf of Greenwich Financial Services would seek to halt loan modifications on Countrywide loans that are designed to avert foreclosure.
"Your complaint demands a court order declaring that if Countrywide wants to modify any loans, it must purchase the loans at 100% of face value. No servicer could do that," the letter to David Grais states.
Grais & Ellsworth noted that Countrywide earlier reached an agreement with the attorneys general of 15 states to settle predatory lending charges by reducing mortgage payments for up to 400,000 mortgages at a cost of up to $8.4 billion. Essentially, the lawsuit claims that pooling and servicing agreements require Countrywide to purchase modified loans out of the pool. Instead, the agreement attempts to shift the cost of the settlement onto investors who purchased mortgage-backed securities, the plaintiffs claim.
Prior to filing the suit, attorneys for Grais & Ellsworth outlined their claims in a briefing for reporters and MBS investors. David Grais said his firm is emphatically opposed to the Countrywide settlement, saying it penalizes mortgage investors for the misdeeds of originators.
He described the agreement to modify a massive number of loans as "an effort by Bank of America to spend other people's money" to remedy the claims against the lender.
But he said investors should not be asked to pay for "widespread misconduct by Countrywide" in the origination of mortgage loans.
Bruce Boisture, a managing director at the law firm, said, "The fundamental lynchpin of this situation is a shifting of penalty, which allowed Bank of America to propose to settle their case with other people's money."
He said that language in the pooling and servicing agreements clearly requires the seller/servicer to repurchase loans that were originated with "predatory" or abusive lending practices.
The law firm is seeing class action certification for the lawsuit.