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Class action mortgage suit settled for $315M by Bank of America
by Joseph Ernest December 7, 2011
Newscast Media HOUSTON, Texas — Bank of America agreed to settle a class action lawsuit brought against it by investors for $315 million. The class action lawsuit was led by the Public Employees' Retirement System of Mississippi pension fund. The fund claimed that the investments were backed by poor quality mortgages written by subprime lenders Countrywide Financial Corp., First Franklin Financial, and IndyMac Bancorp, a bank that failed in 2008.
The settlement still has to be approved by U.S. District Judge Jed Rakoff something that could prove difficult since the settlement includes no admission of guilt from Bank of America.
During the housing boom, several mortgages were sold on the secondary market as Mortgage-Backed Securities (MBS) and were bundled into pools and sold as derivatives to investors across the world. What investor did not know was that most of the MBS, were never mortgage-backed because the Trusts that presided over the securities were defunct, or the mortgages were non-qualifying for the Real Estate Mortgage Investment Conduit (REMIC) Trusts. For a mortgage to be a qualified mortgage, it cannot be in default, nor can it have a lawsuit on it. It has to be a performing loan. It also has to be transferred into the Trust on the startup day of the Trust. REMICs are governed by IRS Tax code 860A-860G.
IRS Tax Code Section 860G(a)(3)(A)(i):
"A mortgage loan is not a qualified mortgage unless it is transferred to the REMIC Trust on the startup day in exchange for regular or residual interests in the REMIC".
IRS Tax Code Section 860F(1):
"To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS an MBS REMIC could not engage in any prohibited action."
If mortgages were never transferred into the Trusts, then the investors purchased bogus securities that never existed to begin with. Most defunct Trusts filed Forms 15-D with the Securities and Exchange Commission, notifying all parties of their Termination of Registration and suspension of their Duty to File Reports under the Securities and Exchange Act of 1934 (15 U.S.C.A. §§ 77a et seq., 78a et seq.).
Because it would have been almost impossible for Bank of America to prove that it owned the MBS and that the Trusts were actually functional, they decided to settle rather than fight the investors. On the other hand, even if they could prove that the Trusts existed but the mortgages were "non-performing" they would be in violation of the tax code because only "qualified mortgages" are permitted to be transferred, or they would have engaged in "prohibited action". So on both sides of the argument BofA would have lost.
A proficient lawyer, Pro Se or Sui Juris, should be able to argue both sides of any argument with cold, hard logic, supported by legal debate. Add Comments>>
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