Class Action Demands Countrywide Repay Hedge Funds For Losses

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December 2, 2008 3:14 PM

Class Action Demands Countrywide Repay Hedge Funds For Losses

Posted by Rachel Breitman

A New York litigation boutique filed a class action suit Monday against Countrywide Financial Corporation on behalf of investors in 374 securitization trusts that suffered losses due to Countrywide's $8.4 billion settlement with 15 states' attorneys general.

Countrywide, which had been charged in July with predatory and unfair lending practices, agreed in October to modify more than 50,000 largely adjustable rate mortgage loans as part of the settlement. The class action demanded that the Calabasas, California-based lender repurchase every modified mortgage loan it had previously sold to the various investment trusts at the loans' original face value.

"Countrywide plans not to absorb the $8.4 billion itself, even though it was Countrywide's own conduct of which the Attorneys General complained in the proceedings," the suit claims, "but rather to pass most or all of that reduction on to the trusts that purchased mortgage loans from Countrywide."

Plaintiffs, including the hedge funds Greenwich Financial Services and QED LLC, are represented by David Grais, J. Bruce Boisture, and Owen Cyrulnik of Grais & Ellsworth. The firm handles complex business litigation dealing with insurance, reinsurance, and securities matters.

Bank of America, which acquired the troubled mortgage giant in July, has turned to O’Melveny & Myers partners John Beisner and Brian Boyle; the two were lead counsel to Countrywide on the October settlement.

Plaintiffs lawyers say that substantially more loans will require modification of some type, and, as such, estimate that Countrywide may have cost the investment trusts far more than the $8.4 billion named in the October 6 settlement.

"Countrywide has said that it may modify as many as 400,000 loans in all," says David Grais in an e-mail to The Am Law Daily. "We believe that the average unpaid principal balance of these loans is approximately $200,000. If so, and if the court grants the declaration we seek in this complaint, then Countrywide (and its parent Bank of America) would be liable to pay the trusts approximately $80 billion for the loans it modifies."

Bank of America said that the class action was an attempt to unfairly punish the bank for a settlement that they claim was geared at helping American homeowners avoid foreclosure.

"We are disappointed in this attack on a program intended to keep as many as 400,000 at-risk families in their homes," said Bank of America spokesperson Shirley Norton in a statement.

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