NEW YORK (Reuters) - A group of investors holding $16.5 billion of mortgage bonds took a step toward a possible suit against a Bank of America Corp unit for failing to correctly handle loans that were packaged into bonds.
The investors said that some mortgages should never have been included in the bonds in the first place, and that the Bank of America unit, Countrywide Home Loan Servicing, should force the original lender to buy them back.
The salvo is the latest effort from investors to push losses from mortgage securities back onto banks that made the original loans. Investors say the loans did not meet the standards that bondholders were promised when they bought the securities.
Countrywide Home Loan Servicing, now part of Bank of America, works on behalf of mortgage bond holders to collect payments on mortgages and work out bad loans.
The bondholders have issued a "notice of nonperformance," which gives Countrywide 60 days to fix the problems. If it does not, the investors can declare "an event of default," -- a technical violation of the terms of the bond, said Kathy Patrick, a partner at Gibbs & Bruns LLP representing the investors.
After an event of default, investors can sue.
On a conference call with investors, Bank of America CFO Charles Noski said the bank has received the letter and is reviewing the allegations.
It is not clear how successful efforts will be for mortgage bonds that were not guaranteed by Fannie Mae or Freddie Mac, analysts at JPMorgan said late last week.