$8.7 bln ResCap MBS deal takes a beating in new objections
Bank of America’s proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities gets all the attention, most recently in a column Sunday by Gretchen Morgenson of The New York Times, who cited new claims that echo old allegations of banks shortchanging MBS noteholders through modification of underlying investor-owned loans. Meanwhile, though, a similar global MBS deal between institutional investors and Residential Capital, the now bankrupt former mortgage lending arm of Ally Financial, has garnered much less outside attention, even though it permits MBS holders to assert an $8.7 billion claim in the bankruptcy, without opposition from ResCap. Friday was the deadline for objections in ResCap’s Chapter 11 to MBS investors’ $8.7 billion allowed claim. And the details that emerged in filings by ResCap bondholders, unsecured creditors and bond insurers that oppose the $8.7 billion deal add up to as compelling a story as the BofA saga, when it comes to assigning blame for and assessing victims of the mortgage crisis.
According to the new filings (especially those of the trustee for senior unsecured ResCap notes, the ad hoc committee of junior unsecured noteholders and the unsecured creditors committee), ResCap’s $8.7 billion allowed-claim settlement with MBS investors was engineered by Ally, which wanted to minimize its own liability to its mortgage unit. The filings point to emails and other evidence suggesting that Ally’s chief in-house litigation counsel, Timothy Devine, led negotiations with Kathy Patrick of Gibbs & Bruns, who represents the big institutional investor group that first notified ResCap of alleged breaches of its representations and warranties on underlying mortgages back in October 2011. (That group, like the BofA investor group, includes BlackRock and Pimco.)
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