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(Reuters)
A federal judge has ruled that Bank of America cannot have a lawsuit by
investors seeking to force it to buy back mortgages heard in federal court,
saying he lacks jurisdiction to decide the case.
Tuesday's
ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means
the case will move to state court. Holwell did not decide the merits of the
case.
"Congress
passed two statutes within a year of each other to address the mortgage
crisis," the judge wrote. "In neither of these statutes did Congress
federalize the case."
The ruling
is a win for investors, to the extent that Holwell rejected a claim by the
bank's Countrywide Financial unit that new federal laws—designed to encourage
loan modifications to help struggling borrowers—govern this case.
Countrywide
had argued that the laws negated obligations it might have had to buy back
modified loans. In 2008, Countrywide agreed with some 11 state attorneys
general to modify $8.4 billion of loans made to roughly 400,000 borrowers.
Investors
who own mortgage securities typically receive interest and principal payments.
If servicers modified the underlying loans to reduce borrower obligations,
investors would be harmed because they would receive lower payments.
Holwell
did rule that investors bear the burden of showing that pooling and servicing
agreements for their loans, taken "as a whole," require Countrywide
to buy back the loans.
Bank of
America could not immediately be reached for comment. A published report said a
spokeswoman agreed that the court did not rule on the merits of the plaintiffs'
claims.
The
current case was brought by two investment funds holding Countrywide mortgages,
Greenwich Financial Services Distressed Mortgage Fund 3 and QED LLC.
These
investors complained they would be harmed if Countrywide shifted the burdens of
loan modifications to 374 trusts into which loans had been repackaged and
securitized.
These
investors would rather Countrywide repurchase modified loans for the full
unpaid amounts.
Countrywide
had been the largest U.S. mortgage lender before Bank of America acquired it last
July for $2.5 billion.
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