Legal News

Law Doesn?t Insulate Countrywide From Lawsuits, Court Rules

By Ashby Jones

Back in May, President Obama signed into law the rather inartfully named Helping Families Save Their Homes Act. Don’t recall it? Oh, Silly, yes you do: It’s the law that encourages modification of mortgages — part of the government’s attempt to allow more people to stay in their homes.

And anyone who spent more than one day in law school knows that new legislation brings new litigation. That’s what we have here. The issue: does the legislation insulate Countrywide Financial, now owned by Bank of America, from lawsuits filed by investors attempting to get Countrywide to live up to pledges to buy back loans if those loans were changed for troubled investors?

The answer, at least the one provided by Manhattan federal judge Richard Holwell, is no. Click here for the story, from the NYT’s Gretchen Morgenson.

As Morgenson explains, the ruling is a win for holders of mortgage-backed securities who sued Countrywide in December after the company, now a unit of Bank of America, agreed to modify thousands of loans in a settlement with state attorneys general. Those investors had maintained that Countrywide, if and when it changes the terms of mortgages, are breaching contractual obligations to owners of those loans.

Judge Holwell ruled that the immunity granted under the legislation did not prevent Countrywide's investors from trying to enforce their rights under the mortgage securities contracts.

"This is a first step in a decision by a federal judge that says even after the servicers' safe harbor was enacted and even after all the wrangling in Congress, we are still going to allow people to enforce their contract rights when it is appropriate," said Owen L. Cyrulnik, a lawyer for investors.

Shirley Norton, a spokeswoman for Bank of America, said it was reviewing the order and considering its options.

Full post as published by Law Blog - WSJ.com on August 20, 2009 (boomark / email).