Last October, when BofA’s proposed $8.5 billion settlement of Countrywide mortgage-backed securities breach of contract claims was just a twinkle in Kathy Patrick’s eye, David Grais of Grais & Ellsworth told me that one of the biggest problems for lawyers representing disgruntled MBS noteholders was the investors’ reluctance to come forward. Noteholders were afraid to provoke the banks that issued mortgage-backed securities, Grais said, so they didn’t want to sue under their own names. That’s why one of Grais & Ellsworth’s early put-back cases was filed on behalf of an ad hoc coalition of anonymous Countrywide MBS investors operating under the name Walnut Place.
It’s also why the Gibbs & Brun investor group that negotiated the BofA deal made such a splash. Kathy Patrick’s big institutional investor clients, including Pimco, BlackRock, and the New York Federal Reserve’s Maiden Lane funds, showed their faces when they offered public support for the proposed $8.5 billion settlement. In fact, after Grais’s Walnut Place investors filed an objection to the proposed deal, supporters of the settlement drew a contrast between the Gibbs group’s public face and Walnut’s anonymity.
But as time runs out for investors to claim a place in the litigation over the proposed settlement, more and more Countrywide MBS noteholders are shrugging off secrecy. On Monday, six new interventions motions appeared in either the original state court docket or in federal court, where Grais & Ellsworth removed the case last week. (A seventh intervention petition, by American Fidelity Assurance, popped up Tuesday morning.) The big news was the placeholder petition Grais filed on behalf of the Federal Deposit Insurance Corporation, which says it is “the receiver of numerous banks and owner of many certificates issued by many of the trusts that would be covered by the proposed settlement.” (Hard to know from that how big a stake the FDIC has in the Countrywide MBS offerings.) Like the six Federal Home Loan Banks that have already intervened in the proposed settlement, the FDIC isn’t yet objecting to the deal, but said it wants more information to evaluate the fairness of the deal.
I was intrigued by a point Squitieri & Fearon made in an intervention petition on behalf of Waterfall Eden Master Fund, which owns certificates in six Countrywide MBS offerings. Waterfall’s lawyers cited the class action bombshell in the recent appellate opinion tossing out a settlement between freelancers and publishers. The BofA MBS settlement isn’t a class action — it was filed as a special proceeding under a New York State law permitting trustees to seek court approval of their actions. But as Waterfall notes, if Grais & Ellsworth manages to keep the case in federal court as a mass action under the Class Action Fairness Act, the Second Circuit’s new requirement that subclasses have their own counsel could turn out to be quite a messy complication for Bank of America.
Perhaps the most intriguing of the latest filings came from Peter N. Tsapatsaris, who’s working with Talcott Franklin of the Investors Clearinghouse. Franklin has worked closely with Grais & Ellsworth in the past, but the request for information he filed Monday isn’t as aggressive as some of David Grais’s intervention papers. It’s not a formal objection to the proposed settlement or even a motion to intervene, but is instead styled as an “objection in the form or a request for more information.”