The FDIC joined forces with more than 3 dozen other investors who are objecting to Bank of America's $8.5 bn settlement of claims over losses on mortgage-backed securities.

In Monday's filing with the U.S. District Court in Manhattan, the FDIC said it is "the receiver of numerous banks and owner of many certificates" issued by many of the 530 mortgage pools of the former Countrywide Financial Corp that the settlement covers.  The FDIC said it is intervening because it does not have enough information to evaluate the settlement.

Among the other investors that objected on Monday are a variety of banks, insurers and investment funds.  

Defending the $8.5bn settlement is BNY Mellon, the trustee handling the 530 trusts with $174bn of unpaid principal balances, which had negotiated the settlement with 22 institutional investors including the Federal Reserve Bank of New York, BlackRock and Allianz SE's Pimco.  The 6/29/11 accord was intended to resolve much of Bank of America's remaining legal liability tied to Countrywide.

Opposition Grows Among Investors.    Dozens of investors have lined up in oppostion to the deal - (i) those who didn't participate in the negotiations, but would be bound by the accord;  (ii) those who say the payout is too low;  and, (iii) those who say they lack enough information to know whether it is fair.  At least 2 state attorneys general - New York's Eric Schneiderman and Delaware's Beau Biden - also have expressed objections. 

A decision on the settlement by a New York state judge is scheduled for 11/17/11.  However, many of the investors who object to the deal want the case handled in federal court.

A Bank of America spokesperson reiterated the bank's position that the trustee acted reasonably, and that there are "compelling reasons" for the settlement to be approved.

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.   [Reuters, 8/29/11]