Last witness testifies against $8.5 billion BofA settlement

Karen Freifeld
Thursday, 14 Nov 2013 | 4:24 PM ET

NEW YORK, Nov 14 (Reuters) - An expert witness testified on Thursday that Bank of America Corp's proposed $8.5 billion settlement with mortgage bond investors is rife with conflicts of interest, as opponents made a final push to derail the deal.

Adam Levitin, a law professor at Georgetown University in Washington, is the last scheduled witness in a long-running case over whether the deal should be approved.

"My opinion is the settlement was not entered into in good faith," Levitin said in state court in New York.

Bank of America agreed to the deal in June 2011 to resolve claims by holders of bonds issued by mortgage lender Countrywide Financial Corp. Bank of America bought Countrywide in 2008.

Twenty-two institutional investors, including BlackRock Inc, MetLife Inc and Allianz SE's Pacific Investment Management Co entered into the deal.

Opponents led by insurance company American International Group Inc accuse Bank of New York Mellon Corp, the trustee overseeing the securities, of placing its interests above those of bondholders by entering into the settlement.

The proceeding, which began in June, has been in recess since late September.

Testifying as the proceeding resumed on Thursday, Levitin said that BNY Mellon had an incentive to "curry favor" with Bank of America because "that's where it's going to get it's business from."

Levitin said the settlement was "not reasonable" and "not prudent," and accused BNY Mellon of "looking out for its own self," and not investors.

Bank of New York Mellon has said allegations it had a conflict of interest are "false and irrelevant" and that the settlement is reasonable.

Lawyers for the bank, the 22 institutional investors and even the judge questioned Levitin's expertise on the customs and practices of residential mortgage-backed securities trustees.

"If I think he goes over what his expertise will show, I just won't give it that much weight," Justice Barbara Kapnick said on Thursday.

Asked about the basis for his comments, Levitin said: "I teach about this stuff."

Levitin is a member of the Consumer Financial Protection Bureau's consumer advisory board, and from 2008 to 2010 he was special counsel for mortgage affairs on a congressional panel that oversaw the Troubled Asset Relief Program (TARP).

Summations are scheduled to begin Monday. It is not known when Kapnick will issue a ruling.

Levitin was called as a witness by American International Group, one of a dwindling number of opponents of the deal.

The Federal Home Loan Banks of Boston, Chicago and Indianapolis withdrew their opposition on Nov. 1, as did the hedge fund Cranberry Park.

The attorneys general of New York and Delaware, who intervened in the case two years ago, said in May they would not block the accord.

The case is In re Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.

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