Hedge Fund's Countrywide Lawsuit Tossed

Oct 14 2010 | 1:27am ET

Bank of America is no doubt very glad that it lost its bid to move two hedge funds' lawsuit against Countrywide Financial Crop. from state court.

A New York judge yesterday dismissed a lawsuit filed by the Greenwich Financial Services and QED LLC against the controversial mortgage lender, which BofA bought two years ago. Supreme Court Justice Barbara Kapnick ruled that the hedge funds' lawsuit did not have the support of 25% of investors in their funds, which is required under the terms of its agreement with Countrywide prior to filing a complaint.

Under that agreement, Greenwich Financial also needs a written notice of default and must agree to indemnify the trustee.

BofA hailed the decision, while Greenwich Financial CEO William Frey noted that the "case was not decided on the merits," and that his firm might appeal or refile the complaint.

Greenwich Financial and QED want Countrywide to repurchase any mortgage loans sold to securitization trusts—at full price—whose terms it revises or renegotiates. After buying the troubled lender, BofA struck a deal with 15 state attorneys general to aid borrowers to the tune of $8.4 billion, settling predatory lending charges. Greenwich Financial says that would hurt any investors who bought the 374 securitization trusts that contain the 400,000 mortgages it planned to revise, and that Countrywide-BofA should take the hit itself, rather than passing it along to bondholders.

In August, a federal judge rejected BofA's motion to move the case into federal court.

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