Countrywide ruling a victory for investors
NEW YORK - A federal judge in Manhattan has rejected an argument by Countrywide Financial seeking certain protections from investor lawsuits under new legislation designed to encourage modifications of home loans.
Countrywide, the big mortgage company, had argued that the legislation automatically voided its pledges to buy back loans from investors if those loans were modified for troubled borrowers.
The ruling is a victory for holders of mortgage-backed securities who sued Countrywide in December after the company, now a unit of Bank of America, agreed to modify thousands of loans in a settlement with state attorneys general.
The opinion, by US District Court Judge Richard J. Holwell, was made public on Tuesday.
The case against Countrywide is being closely watched by pension funds, insurance companies, and other investors in mortgage securities who contend that loan servicing companies that agree to change the terms of mortgages are breaching contractual obligations to owners of those loans.
Investors who own mortgage securities receive interest and principal payments from borrowers over the life of the loans. When servicing companies modify those loans, investor payments are typically reduced.
Bank of America, which took over servicing of the investors’ loans when it purchased Countrywide in 2008, argued that any contractual obligations to repurchase modified loans were trumped by the Helping Families Save Their Homes Act of 2009. Under that law, servicing companies that agree to modify loans receive some protection from liability arising from the loan changes.
