BofA MBS pact faulted by Fannie/Freddie, borrowers

NEW YORK (Reuters) - The regulator for Fannie Mae and Freddie Mac, as well as dozens of investors, on Tuesday lodged objections to Bank of America Corp's proposed $8.5 billion mortgage-backed securities settlement.

Separately, a group of homeowners sued to block the accord, saying it would speed up foreclosures and perpetuate abuses in how mortgage loans are serviced. They are seeking a court order to force Bank of America to adopt and follow servicing policies that are "higher than current industry standards."

The settlement covers 530 mortgage pools from the former Countrywide Financial Corp, which was the nation's largest mortgage lender before Bank of America bought it in 2008.

Bank of New York Mellon Corp, the trustee handling the 530 trusts with $174 billion of unpaid principal balances, had negotiated the settlement with 22 institutional investors including the Federal Reserve Bank of New York, BlackRock Inc and Allianz SE's Pimco.

But some other investors say the payout is too low, or they lack enough information to know whether the accord is fair.

In a court filing, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, called it a "positive" that the settlement calls for improving loan servicing and fixing deficient documentation, and said the support of many large market participants is "encouraging."

Still, the FHFA said it lacks enough information about the accord, and wants to position itself to voice a "substantive" objection "should a now unforeseen issue arise" that hurts Fannie Mae and Freddie Mac.

The pair in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress in June shows.

Meanwhile, the homeowners, who say they have received default notices, seek class-action status for Countrywide borrowers from 2004 to 2008 whose loans are in the trusts and are serviced by Bank of America.

Bank of America is among large U.S. banks negotiating with regulators nationwide on a potential multi-billion dollar settlement to improve foreclosure practices.

Lawrence Grayson, a bank spokesman, declined to comment, as did Bank of New York Mellon spokesman Kevin Heine.

DOZENS OF OBJECTIONS

Several dozen objections to the $8.5 billion settlement were filed ahead of a Tuesday deadline to intervene in the case, which is overseen by New York State Supreme Court Justice Barbara Kapnick in Manhattan.

Some of the challenges were filed simultaneously in federal court, where some of the objectors hope to move the case.

American International Group Inc, the insurer suing Bank of America for $10 billion in a separate MBS case, and the National Credit Union Administration were among those to object on Tuesday to the accord.

Others that have objected include the Federal Deposit Insurance Corp, attorneys general of New York and Delaware, and various banks, insurers, investment funds and pension funds.

Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.

US Bancorp, trustee for a $1.75 billion Countrywide mortgage pool, this week separately sued Bank of America to force it to buy back the underlying loans.

The state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011. The federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988. The homeowner case is Iesu et al v. The Bank of New York Mellon et al, U.S. District Court, Southern District of New York, No. 11-06078.

(Reporting by Jonathan Stempel; Additional reporting by Joe Rauch in Charlotte, N.C.; editing by Carol Bishopric)

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