The Work
October 6, 2008 5:27 PM
O'Melveny on Groundbreaking Countrywide Settlement
Posted by Zach Lowe
In what could prove to be a trendsetting deal, O'Melveny & Myers advised Bank of America in its agreement to restructure mortgages for up to 400,000 hard-pressed borrowers in 11 states who sued the bank over alleged predatory lending practices by its recently acquired subsidiary, Countrywide Financial Corp.
The settlement could end up costing B. of A. as much as $8.6 billion, though the exact dollar value--and the agreement's impact on private lawsuits against the banking giant--is already being debated. Attorneys involved in private suits against B. of A. say it appears borrowers could continue on with those suits even if they accept some sort of relief, though that's unclear.
O'Melveny partner John Beisner led the team repping B. of A. Beisner, who has previously defended Merck in Vioxx litigation, says using the settlement to help borrowers keep their homes instead of simply punishing B. of A. is "unprecedented."
On the surface, the agreement appears to satisfy earlier demands by prosecutors that any settlement go beyond a fine against B. of A. and include loan modifications and other relief for homeowners. San Diego city attorney Michael Aguirre, a critic of an earlier plan that would not have included foreclosure protections, says he's happy with the final outcome. He credited officials in Massachusetts and the Greenlining Institute, an organization that supports low-income homeowners, for pushing the states toward a loan modification settlement.
"The rest of us just stole their ideas," says Aguirre, who plans to file complaints on Friday against other mortgage lenders and hopes to reach settlements similar to the B. of A. agreement.
The two sides began seriously discussing the loan modification system shortly after the states filed suit against B. of A. in June, Beisner says. The bulk of the work involved devising ways to determine which borrowers will be eligible for what type of relief, he says. Further complicating matters, he says, was the decision by the states to negotiate individually rather than collectively.
Paul Kiesel, a name partner at plaintiffs firm Kiesel Boucher Larson who has several class actions pending against B. of A. in connection with Countrywide loans, says he believes his clients can pursue their cases even if they agree to restructure their loans. Borrowers are also free to reject any restructuring, Kiesel says.
Beisner agrees that private citizens can continue their cases against B. of A. But Robert Gnaizda, general counsel for Greenlining, says judges may approach the cases with skepticism should homeowners agree to restructuring and continue with their lawsuits.
In a statement, Greenlining also cast doubt on the $8.6 billion figure, saying B. of A. would have had to restructure some of the loans anyway and will have access to billions in federal money made available in last week's bailout legislation.
Beisner chose to focus on the unique nature of the settlement.
"We really tried to create a win-win here," he says.
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