Novel Lawsuits Fly

A hedge fund, run by William Frey, has sued Countrywide and its parent, Bank of America, on their agreement with 15 state attorney generals to modify 400,000 mortgages originated and serviced by Countrywide.  In the lawsuit the hedge funds states that the settlement is fine but that Countrywide has offered to modify mortgages that it no longer owns - investment trusts own them.  The hedge fund, an investor in securities issued by the trusts and backed by the securities, says that Countrywide must repurchase the mortgages in the trusts at par in order to modify them.  The outcome of the case will turn on the contractual language in the pooling and servicing agreement between Countrywide and the investment trusts. If the hedge fund prevails, Countrywide will have to pay MBS security holders to modify the mortgages (with government bailout money??) A demand for redress, filed with HUD and awaiting HUD action, alleges that subprime mortgage originators discriminated against minority groups in pushing and selling subprime mortgages.  These will be just two of many, many lawsuits that will occupy lawyers for years as a result of the mortgage default crisis.