Countrywide Sued by Fund Over $8.4 Billion Loan Deal (Update1)

By Patricia Hurtado

 

Dec. 1 (Bloomberg) -- Countrywide Financial Corp., the home lender acquired by Bank of America Corp., was sued by Greenwich Financial Services Fund over claims an agreement to reduce payments on mortgages by $8.4 billion would hurt investors.

 

The hedge fund claims investors will be harmed by Bank of America’s settlement, reached on behalf of Countrywide, with 15 state attorneys general. The value of trusts that bought 400,000 mortgages will decline under the deal, the fund said.

 

In the proposed class action, or group lawsuit, the Greenwich, Connecticut-based fund demands a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts,” David Grais, a lawyer for the fund said today in an e-mailed statement. Grais said Countrywide could owe $80 billion to the trusts.

 

“Countrywide plans not to absorb the $8.4 billion reduction in mortgage payments itself, even though it was Countrywide’s own conduct of which the attorneys general complained,” the fund said in the complaint filed today in New York State Supreme Court in Manhattan. Under the settlement, the mortgage lender would “pass most or all of that reduction on to the trusts that purchased mortgage loans from Countrywide,” the fund said in the complaint.

 

Bank of America reached the settlement in October with 15 state attorneys general. The bank didn’t admit or deny any wrongdoing under the accords. Shirley Norton, a Bank of America spokeswoman, didn’t immediately return a voice-mail seeking comment on today’s complaint.

 

374 Securitization Trusts

 

Grais said in his e-mail that the hedge fund is seeking a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts.”

 

Countrywide must change at least 50,000 mortgage loans between today, when its modification program starts, and March 31, he said. The lender has said it may modify as many as 400,000 loans, Grais said.

 

“We believe that the average unpaid principal balance of these loans is approximately $200,000. If so, and if the court grants the declaration we seek in this complaint, then Countrywide (and its parent Bank of America) would be liable to pay the trusts approximately $80 billion for the loans it modifies,” he said.

 

The case is Greenwich Financial Services Distressed Mortgage Fund 3 v. Countrywide Financial Corp., New York State Supreme Court (Manhattan).

 

To contact the reporter on this story: Patricia Hurtado in Manhattan at pathurtado@bloomberg.net

Last Updated: December 1, 2008 14:52 EST

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