investment firms

Bank of America’s Mortgage Deal Questioned

Letters sent by Mr. Schneiderman’s office to the firms that agreed to the settlement point to concerns by the attorney general that the deal may have been struck without full participation by all investors who would be affected by its terms. The letters, obtained by The New York Times, were sent to BlackRock Financial Management, Metropolitan Life Insurance, Pimco, Goldman Sachs Asset Management and 18 other parties, asking for information “regarding participation by both your firm and clients” in the settlement.

A spokesman for Mr. Schneiderman declined to comment. But this request for information is part of a broad investigation that he has begun into all aspects of the mortgage bundling process that has led to billions of losses for investors.

The proposed Bank of America settlement covers 530 mortgage pools issued by Countrywide Financial, the lender purchased by the bank in a distress sale in 2008. But the investment firms that agreed to the deal held interests in only about one-quarter of those pools, leading some investors to question its fairness. Furthermore, the proposed settlement does not allow investors who do not like its terms to opt out and bring their own suits against Bank of America. Any outstanding claims against the bank by investors who hold any of these securities would be extinguished under the deal.

The agreement could also speed up the foreclosure process, pushing more delinquent borrowers out of homes more quickly.

The terms of the proposed settlement appear to be favorable to Bank of America. Given that the unpaid principal amount of the mortgages covered by the settlement is $174 billion, the $8.5 billion to be paid by Bank of America represents just under 5 cents on the dollar. On June 29, when the deal was announced, Bank of America’s shares closed almost 3 percent higher.

A final court hearing to approve the settlement is scheduled for Nov. 17. One investor, Walnut Place L.L.C., has already objected to the terms of the settlement in filings made last week with the court. Earlier this year, Walnut Place sued Bank of America, contending that many of the loans in the pools it invested in breached the underwriting characteristics and other representations made by Countrywide when it sold the pools. Under the terms of the Bank of America deal, this lawsuit will not be viable.

In objecting to the deal, lawyers for Walnut Place argued that the Bank of America settlement was negotiated in secret by Bank of New York Mellon, trustee for the Countrywide mortgage pools. As negotiator, Bank of New York Mellon was also conflicted, Walnut Place contends, because Bank of America has agreed to cover all the trustee’s costs and liabilities related to the settlement.

“It is very unusual, to say the least, for a trustee that says it is representing the interests of the beneficiaries of a trust, to demand and obtain an indemnity from the very party that is adverse to that trust and its beneficiaries,” lawyers for Walnut Place wrote in its filing.

David J. Grais, a lawyer at Grais Ellsworth who represents Walnut Place, declined to comment. A spokesman for Bank of New York Mellon declined to comment. But in its legal filings the bank maintained that Bank of America was required to reimburse legal costs under the terms of the original mortgage pools.

Additional questions about the terms of the settlement were raised by Representative Brad Miller, a North Carolina Democrat. In a July 8 letter to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the mortgage finance giants, Mr. Miller asked whether the regulator would join other investors objecting to the deal. He said the concerns of some investors that Bank of New York Mellon and Bank of America had refused to provide “information necessary to determine adequacy of the settlement.” For example, investors have been unable to review loan files to assess how many of the mortgages in the pools satisfied the characteristics and representations promised to investors who bought into them, Mr. Miller noted. “Independent investigations show that perhaps two-thirds of the mortgages did not comply with the representations and warranties,” he wrote.

Article source: http://feeds.nytimes.com/click.phdo?i=3509ebef06c9c944321594bacf1e1de7

Regulators Move to Delay Swaps Crackdown and Bolster Banks

In a move that will give the European Union time to catch up with the United States, the U.S. Commodity Futures Trading Commission conceded on Tuesday what market observers have long known — new swaps rules must be postponed.

The CFTC proposed delaying for months the effective dates of new rules overseeing the over-the-counter derivatives market, including credit default swaps like those that helped amplify the 2007-2009 banking crisis.

The U.S. agency’s move came as French President Nicolas Sarkozy called on Tuesday for tighter controls over speculators he blames for rising food and energy prices.

The EU has trailed the United States in cracking down on commodities speculation and derivatives, prompting concern among policy-makers about an uneven pace of regulation clouding the overall outlook for new global oversight.

That concern would be somewhat relieved by the CFTC’s action, as would worries among commodity and derivatives traders about complying with new U.S. rules.

Some of the new rules mandated by 2010’s Dodd-Frank financial oversight law have taken effect. Some are still being debated. Others were to take effect automatically on July 16, one year after the passage of the sprawling legislation.

The trouble was the CFTC has not yet finalized many details surrounding the July 16 “self-executing” rules. Delaying them will give “needed clarity for market participants” and address legal concerns, the CFTC said.

U.S. and EU authorities are trying to impose the first thorough regulation of the vast and volatile off-exchange swaps markets. The idea is to force more trades onto exchanges or electronic trading platforms, as well as through clearinghouses and data repositories, to make the markets more accountable.

Widespread ignorance of the swaps exposures of troubled investment firms such as Lehman Brothers and former mega-insurer AIG greatly aggravated the 2007-2009 crisis that led to massive taxpayer bailouts of Wall Street.

FDIC BACKS BANK CAPITAL FLOOR

Separately, U.S. banking regulators on Tuesday approved a final Dodd-Frank rule requiring large banks to meet the same minimum capital standards as community banks.

The rule implements the so-called Collins amendment of Dodd-Frank, intended to set a capital floor for all U.S. banks and ensure that large institutions cannot be less well-capitalized than their small-bank counterparts.

The Federal Deposit Insurance Corp approved the measure generally affecting banks with more than $250 billion in assets, such as Bank of America, Citigroup, Wells Fargo and JPMorgan Chase.

Another central part of the global financial regulation crackdown is forcing banks to hold more capital on their books so they can weather future troubles. Inadequate capitalization was also a distinct feature of the 2007-2009 crisis.

Shortly before the FDIC’s action on Tuesday, Britain’s financial services minister warned that tough new global bank capital rules must be implemented in full in the EU and the bloc’s banking test must not be diluted.

The European Banking Authority is completing stress tests of banks’ books, with results due in early July. A robust, credible test will help restore confidence in the banking sector, Mark Hoban told a conference.

“It’s in no one’s interest to undermine the stress tests by watering them down,” he said.

The EU is due to publish a draft law next month to implement a global set of rules known as Basel III, to increase the regulatory capital cushions banks must hold from 2013.

(Additional reporting by Huw Hones and Sudip Kar-Gupta in London; John O’Donnell and Charlie Dunmore in Brussels. Writing by Kevin Drawbaugh; Editing by Tim Dobbyn)

Article source: http://feeds.nytimes.com/click.phdo?i=fdad9c5a3098985e3b499aae3c65a94e

Bank of America’s Mortgage Deal Questioned

Regulators Move to Delay Swaps Crackdown and Bolster Banks

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