Investors Sue CFC over Loan Mods

Two investment funds have filed a class action lawsuit to stop Countrywide Financial Corp. from passing off losses on loan modifications to investors in mortgage-backed securities. The complaint alleges that Bank of America's settlement with state attorneys general could lead to the modification of nearly 400,000 Countrywide loans totaling $80 billion and to a reduction in payments to investors by $8.4 billion and a reduction in value of the MBS. Under the pooling and servicing agreements, Countrywide must purchase the loans out of the securitized pools at par with accrued interest before the loans can be modified, according to the plaintiffs, Greenwich (Conn.) Financial Services and QED LLC. "The only way to modify the loan according to the contract is to purchase it," said William Frey, who manages both funds. There is no contractual ability for CFC to modify the loans and keep them in the securitized trusts, he added. Bank of America said loan modifications benefit both homeowners and investors. "We are confident any attempt to stop this program will be legally unsupportable," a statement issued by the bank said. The plaintiffs filed the class action lawsuit in a New York state court on behalf of investors in 373 CFC MBS totaling $150 billion.