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Schneiderman Re-Intervenes in Bank of America MBS Settlement

New York Attorney General Eric Schneiderman renewed his work on behalf of investors in the $8.5 billion Bank of America mortgage backed securities settlement yesterday. He filed papers with the New York state Supreme Court, seeking to intervene in the case.

He had made the same request last August before the case moved to federal court. It returned to the state court in February.

The settlement announced last June arose from Charlotte, North Carolina-based Bank of America’s 2008 purchase of Countrywide Financial Corp, once the nation’s largest mortgage lender.

It was negotiated by Bank of New York Mellon Corp as trustee for 530 residential mortgage-securitization trusts from 2004 to 2008, with an estimated $174 billion of unpaid principal […]

In papers filed Tuesday, Schneiderman raised questions about its “fairness and adequacy,” with investors receiving only a few pennies on the dollar for losses suffered.

Schneiderman also maintained that Bank of New York Mellon had a conflict of interest because it stood to receive financial benefits under the settlement. He dropped previous fraud counterclaims against Bank of New York Mellon.

Because the case moved back to New York state, and in particular Supreme Court judge Barbara Kapnick, seen as very compliant to the banks, it will be difficult for Schneiderman to make headway. A separate group of investors won the right to pursue a judgment in federal court.

Schneiderman is right to bring up the conflict of interest. When Schneiderman filed his initial motion to intervene in the settlement, he noted that “BNYM (Bank of New York Mellon) stands to benefit from the settlement agreement and that the relief sought here appears designed to largely insulate BNYM from fiduciary duty claims arising from the settlement.”

Schneiderman previously made numerous securitization fraud claims in the motion to intervene, in particular violations of New York’s Martin Act, the stringent securities law governing the state. He charged in a counter-claim that BNYM “failed to ensure mortgage file integrity, failed to alert investors to events of default, and took no actions to remedy the disastrous collapse in value of the Trusts it was supposedly safeguarding.” There were also charges of false representations on the quality of the mortgages in the Trusts, and charges that BNYM never took action to correct the false representations. He also wrote this, and now you will see how the foreclosure fraud settlement constrains future investigations and efforts to hold banks accountable:

These provisions are central to any mortgage securitization, but they are now vitally important to trust investors in light of the housing market collapse. Any action to foreclose requires proof of ownership of the mortgage. This must be demonstrated by actual possession of the note and mortgage, together with proof of any chain of assignments leading to the alleged ownership. Moreover, complete mortgage files give borrowers assurance that their properties are properly foreclosed upon. The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities including, for example, “robo-signing.” These fraudulent activities have burdened borrowers as well as the courts with flawed foreclosure proceedings.

So, that has been dropped. The conflict of interest claim remains strong, but either because Schneiderman is saving his other arguments for the dormant securitization task force, or because some of the arguments have been released, they have disappeared from his motion to intervene. Bank of New York Mellon still failed to abide by this pooling and servicing agreement, but the New York Attorney General is only calling them on their financial gain from a broad settlement with investors.

Coincidentally, Bank of New York Mellon held their annual shareholder meeting in Pittsburgh yesterday. I was actually supposed to attend, but they changed the date at the last minute (just to stop ME). SEIU and a series of activist groups protested the meeting on the outside and infiltrated it on the inside, the first of a series of shareholder activism events you’re going to see this year.

Dissident shareholders ripped executives at Bank of New York Mellon Corp.’s most raucous annual meeting in years over allegations that the bank overcharged state pension clients to trade their foreign currencies.

A dozen outspoken shareholders at Tuesday’s meeting Downtown also criticized the bank for paying bloated salaries to executives and not paying its fair share of taxes […]

One shareholder angered by executive salaries said it would have taken him 240 years to earn the $12 million that BNY Mellon paid Hassell in 2011.

“Is that fair?” the retired steelworker asked Hassell, who had no comment.

Hassell later said such comments are “inevitable” at such forums. He maintained the bank pays its “fair share of taxes” according to law. The bank paid about $25 million in taxes to Pennsylvania last year, including nearly $7.6 million in corporate net income taxes.

“I don’t know how you sleep at night making $12 million a year, when some (BNY Mellon) workers are making $10 an hour,” said Joni Rabinowitz, a shareholder from Park Place.

Shareholder activists tried to split the positions of chairman and CEO into separate jobs, and to get individual votes for members of the board of directors, but were unsuccessful.

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David Dayen

David Dayen