Bank of America is facing a legal challenge over a multibillion-dollar promise to modify home loans for 400,000 borrowers, underscoring one of the biggest obstacles to efforts on reducing foreclosures.
The suit was filed yesterday in New York state supreme court by an investor in mortgage securities issued by Countrywide Financial, which was bought this year by BofA.
Bill Frey, chief executive of Greenwich Financial Services, who is seeking class action status for the suit, wants to force BofA to buy back about $80bn of mortgages at face value and shoulder the entire cost of the promised modifications.
BofA’s current plans would result in investors absorbing the bulk of an expected $8.4bn of payment reductions for borrowers with Countrywide home loans. Most of these mortgages are not owned by Countrywide, but by trusts to which the lender sold the loans in the process of securitisation.
Frey argues contracts governing servicing of securitised Countrywide home loans require BoA to buy the mortgages back at face value before they can be modified.