BofA, Goldman Sachs Find State Mortgage-Securities Cases Hard to Shake

Investors suing Bank of America Corp. (BAC) and more than a dozen other underwriters to force the buyback of $6.7 billion in downgraded mortgage securities have defeated efforts by the banks in pretrial skirmishes to throw out the cases or move them from state courts.

A Washington state judge in Seattle said in rulings over the past two months that Bank of America, Goldman Sachs Group Inc. (GS) and other underwriters can’t cite faulty data from appraisers or expired statutes of limitation to avoid Federal Home Loan Bank of Seattle’s claims that there was false information in offering documents for at least $3.9 billion in securities it bought.

Bank of America tried unsuccessfully today to persuade a California state court judge that the statue of limitations had expired on claims in a lawsuit seeking to make underwriters repurchase $19 billion in mortgage-backed securities.

If the judge’s tentative ruling becomes final, it may open the door for investors to access internal bank files and e-mails about the loans in the pre-trial exchange of evidence, strengthening their bargaining position in any settlement talks.

“At each milestone it puts additional pressure on the defendant to settle,” said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm in Petaluma, California, that advises clients on legal and contractual matters.

The nine securities dealers sued by the Federal Home Loan Bank of San Francisco asked Judge Richard Kramer today to dismiss the case. They said the home loan bank waited too long to sue, should have heeded “public awareness” of the risks of mortgage-backed securities and was warned in the offering documents about potential problems with loan performance, according to court filings.

The statute of limitations for seeking buybacks is two years from when the bank knew or should have known about the alleged false statements, Kramer said. The securities at issue in the case date back to 2006. The lawsuit was filed last year.

The home loan bank, a sophisticated and central player in the mortgage business, would “have had to be more than deaf, dumb and blind” not to have known back in 2007 about the problems with residential loans, said Stephen Hibbard, an attorney for Bank of America, at today’s hearing in San Francisco. “The information was out there in the world, and this sophisticated plaintiff should have known.

Bank Of America Sued Again Over Countrywide Loans - The Consumerist

We're willing to bet that Bank of America CEO Brian Moynihan's office has two dartboards: one featuring the curiously orange face of former Countrywide head honcho Angelo Mozilo, whose company made countless loans to people it knew could never properly repay them; the other with the smirking face of Moynihan's predecessor Ken Lewis, who was stupid enough to think Countrywide was worth buying, a decision that continues to haunt the nation's largest bank.

The latest Countrywide-related fiasco is a lawsuit brought against BofA by a group of 16 investors, including the giant California Public Employees' Retirement System, who claim that Countrywide didn't quite tell them the truth about the risk involved in the loans it was making.

"Beginning in 2003, Countrywide changed its business model to originate as many loans as possible by increasingly producing subprime, nontraditional and risky loans while disregarding its underwriting standards," reads the lawsuit, which seeks hundreds of millions of dollars in compensation.

The plaintiffs in the case are among those who opted out of the May 2010 $624 class action settlement with BofA .

Bank of America has already lost billions in legal actions linked to Countrywide. Most recently, it settled with a group of two dozen institutional investors for $8.5 billion .

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