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New questions raised in BofA mortgage loan modifications

Bank of America bought up subprime mortgage monolith, Countrywide Financial, back in 2008. Life hasn't been easy for the banking giant since then. And now the headache associated with the effort to recover from Countrywide's bad mortgage bundles appears to be getting worse.

Dallas readers may find it intriguing to learn that investors of Countrywide are still waiting to close the books on the losses they suffered when subprime mortgage market collapsed. There's an $8.5 million settlement on the table with Bank of America, but documents filed by investor representatives in a court in New York last week could signal that the deal won't cut it. The documents contend that Bank of America has sought to obtain a measure of debt relief for itself at the expense of the investors.

Specifically, the documents allege that a limited review of some residential mortgage modification deals handled in 2010 show that the bank reduced principal loan amounts on first mortgages held by the investors. At the same time, they say, home equity loan values held by the bank and backed by second mortgages weren't adjusted at all. The result is that the Countrywide investors claim they are being shortchanged.

The claims are now before the court and could scuttle the standing settlement deal. It's unclear when a decision might come.

For its part, the bank suggests that the investors, some of whom are Federal Home Loan Banks, are out of line. It says it's just trying to provide debt relief through mortgage modifications so that the country's economy can recover, and that it's hard to understand why the investors would want to disrupt that.

What this story emphasizes is that there are large, well-funded players in the field. They are all seeking to look out for their own interests. The interests that often go by the wayside are those of individuals who desperately need debt relief, perhaps through bankruptcy, to avoid foreclosure. They deserve to be heard. They can be with the help of experienced legal counsel.

Source: The New York Times, "Fresh Questions Over a Bank of America Settlement," Gretchen Morgenson, Feb. 3, 2013

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