Hedge Fund Sues Bank of America Over Countrywide Mortgage Modifications

by: Michael Steinberg December 02, 2008 | about stocks: ABK / BAC / MBI    

Michael Steinberg

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The New York Times “Investors Sue Countrywide Over Loan Modifications” reports that hedge fund Greenwich Financial Services claims it would lose money if Bank of America (BAC) modified Countrywide mortgages. The modifications result from a settlement with 11 state attorneys general based on Countrywide’s deceptive loan practices. Greenwich further claims that the trust agreements require Countrywide to buy back any modified mortgages at face value.

Countrywide said that the plaintiff is trying to unlawfully “assert the rights of the trusts.” Countrywide claims to be acting in the best interest of the trust investors, adding: “Loan modifications have been occurring for decades without objections or challenges, so we are especially troubled at the timing of this complaint. We are confident any attempt to stop this program will be legally unsupportable.”

I wrote that Greenwich first threatened a lawsuit in "Hedge Funds Threaten to Block Mortgage Modifications". The interesting question in the suit is whether the investors and trust are the same entity. I’ll have to leave that up to the lawyers. But it does show that Congress will have to clarify the legal landscape. In extraordinary times Congress can override legal contractual remedies for the common good. Either way, right now Bank of America appears to be trapped between the government and an aggressive investor.

The monolines are taking a different track against mortgage originators. Ambac (ABK) and MBIA (MBI) are suing for false warranties and requesting that mortgages in trusts they insured be repurchased. It seems that this is a more straightforward path. The political tide is running against Greenwich.

Disclosures: Author is long ABK, BAC and MBI.

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This article has 3 comments:

  •  
    Dec 02 08:29 AM
    The way I see it is Geenwich made a bad investment and is losing. BoA is trying to salvage what they can from Countrywide mistakes and greed. The only ones who make out like fat rats are the lawyers. So in the end Greenwhich lost investors dollars in a bad investment and they are going to lose more paying for lawyers.
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  •  
    Dec 03 12:00 PM
    My guess is that Greenwidh would be well satisfied if the mortgage originators repurchased the fraudulent mortgages rather than recast them.
    Reply | Link to Comment
  •  
    Dec 13 05:45 PM
    Forget Hedge Funds. Do not send any of them your money. Stick with well grounded Mutual Funds like Fidelity or 20th Century or others. Back to basics. Do not be a fool and send your millions to a one man shop. Go with firms like Fidelity who cannot steal your money!!!! The track records of the many mutual fund companies are better than that of Hedge Funds anyway. Hell, buy your kids Coca Cola, JNJ, PG, and take the stock certificates and put them in your safe deposit box if you want. Do not mess around with these Hedge Funds and 1 man shops on the street! And stop following all the advise of the ETF crowd. If you have $10 million put 500k in 20 well run, good old fashioned mutual funds! Then enjoy life and look at your returns in 10 or 20 years...
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