A proposed $8.5 billion Countrywide RMBS settlement has returned to New York state court in a move that has been largely expected to speed its approval, with Fitch Ratings now estimating it could move ahead in mid-2012.
However the ratings agency noted that there is still some uncertainty as the proposed settlement still at this point has not received that final approval.
If the settlement is approved, "it would cover approximately one-half of the private label RMBS related to [Countrywide successor Bank of America, which bought the former company in 2008] and legacy entities," Fitch said.
"We believe an approval would provide a potential framework for other settlements," the ratings agency said.
Fitch noted that Bank of America has said that if the settlement is not approved, its private label rep and warranty losses could "substantially exceed the existing reserve." (Bank of America reserved the settlement amount in the second quarter of last year.)
The ratings agency said the court approval of the proposed settlement is a critical issue for Bank of America as well as the larger banking industry.
Fitch said it has "underpinned" its base case assumption on estimated rep and warranty losses from private label securities on the settlement.
"We believe if this settlement is not approved, losses could escalate beyond our base case," the ratings agency said.
Bank of New York Mellon, as trustee for the residential mortgage-backed securities involved in this proposed settlement, initially entered into the settlement on behalf of 525 first-lien and five second-lien RMBS trusts issued by Countrywide affiliates in June of last year.
More than 20 institutional investors represented by law firm Gibbs & Bruns originally notified the trustee and B of A's servicing unit of potential repurchase/servicing claims by means of a notice of noncompliance, requesting the trustee enter into the settlement. They also were parties to a separate agreement with B of A/Countywide and BNY Mellon confirming their support for the settlement.
The investors include BlackRock Financial Management Inc., the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank of New York's Maiden Lane entities, AEGON USA Investment Management LLC and several others.
The settlement originally became delayed during an initial period during which investors were able to register concerns about its terms, during which notably an entity called Walnut Place filed motions to intervene and others also objected to the settlement, saying they believed its value was insufficient relative to the scope of the rep and warranty breaches.
Walnut Place initially was successful in an effort to move the case to federal court from state court in October of last year. But then BNY fought the move through an appeal, moving the case back to state court.
If the case receives final court approval, it will no longer be something that individual investors can challenge, according to Fitch.
