Cracks in the Foundation

, The Am Law Daily


Kathy Patrick, partner, Gibbs & Bruns, Houston
Kathy Patrick, partner, Gibbs & Bruns, Houston

Bank of America has said in its earning statements that its loss reserves on its nonprime putback liabilities are predicated on the success of the BNYM settlement. Given the aforementioned developments in the last few months and other losses for BofA in its epic battle against MBIA — including losing a challenge to MBIA's 2009 change in corporate structure — it appears that BofA will be making its stand on a settlement with numerous cracks in its foundation.

Should the bank's settlement be rejected, it may finally have to face the music and recognize that the bulk of Countrywide's nonprime mortgage loans met no semblance of their stated underwriting guidelines. But irresponsible lending was not confined to Countrywide, and other MBS–issuing banks may soon have to face the same reality.

Isaac Gradman, an attorney at Perry, Johnson, Anderson, Miller & ­Moskowitz in Santa Rosa, California, has represented investors and insurers in some of the earliest putback lawsuits, starting in 2007. (He has not advised or opposed parties in any of the cases mentioned in this article.) Gradman writes regularly about mortgage-backed securities litigation on his blog, The Subprime Shakeout (

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