Six of the Federal Home Loan Banks, including the branch in Boston, and another investor are seeking to intervene in Bank of America Corp.’s $8.5 billion settlement with investors in soured mortgage-backed securities, signaling growing opposition to the accord.
FHLB branches in Boston, Chicago, Indianapolis, Pittsburgh, San Francisco and Seattle said they have gotten "very little information" to help decide whether the settlement with the nation’s largest bank is fair.
They said they paid more than $8.8 billion, a sum exceeding the entire settlement amount, for securities in 73 trusts backed by home loans from Countrywide Financial Corp., which Bank of America bought in 2008.
Meanwhile, the investor TM1 Investors LLC said it may sue to force Bank of America to buy back its securities, which it said were once worth more than $400 million.
The opposition was expressed in filings on Wednesday in the New York State Supreme Court in Manhattan. It means at least four investors or investor groups are preparing challenges.
Eric Schneiderman, the state attorney general, has asked most of the 22 institutional investors joining the settlement — including BlackRock Inc., MetLife Inc. and Allianz SE’s Pacific Investment Management Co. — for details about the accord, a sign he may challenge it as well.
The $8.5 billion settlement covers mortgages with a $174 billion unpaid principal balance, about 5 cents on the dollar.
Bank of America spokesman Lawrence Grayson declined to comment. David Grais, a lawyer for the home loan banks and TM1, also declined to comment.
In their filings, the six home loan banks and TM1 said they are unconvinced that Bank of New York Mellon Corp, trustee for the 530 mortgage pools covered in the settlement, adequately protected their rights in negotiating the accord.
"After much investigation, TM1 believes that many of the loans that Countrywide sold to the trust in which it owns securities did not comply with the representations and warranties," Grais wrote.
"As a result," he added, "TM1, together with one or more investors in the same trust, is considering legal action on behalf of that trust to enforce Countrywide’s obligation to repurchase those defective loans."
The 12 federal home loan banks offer financing and grants to help members make mortgage and small business loans, and foster economic development.
One, the Federal Home Loan Bank of Atlanta, is among the 22 investors that signed on to the Bank of America settlement.
"The federal home loan banks operate independently," said Sharon Cook, a spokeswoman for the Atlanta bank. "We support the settlement, and the right of other federal home loan banks to further evaluate it."
Other objections to the accord have come from companies known as Walnut Place LLC, which Grais’ firm represents, and from a group of public pension funds that said some investors could get a "windfall."
If the settlement wins court approval, affected investors would not be allowed to "opt out." Walnut Place would have to drop its February lawsuit against Bank of America over its securities, once worth $1.06 billion.
New York State Supreme Court Justice Barbara Kapnick in Manhattan scheduled a Nov. 17 hearing on the settlement.
