The lawsuit between investors and Countrywide Financial, sparked by Countrywide's 2008 settlement with attorneys general, will not be heard in federal court. Judge Richard Holwell, of the U.S. District Court for the Southern District of New York, declared that the case return to New York's Supreme Court, where the plaintiffs – Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC – originally filed suit late last year.
The investment funds, managed by Greenwich Financial Services' William A. Frey, argue that, pursuant to pooling and servicing agreements, Countrywide must buy back loans it agreed to modify in its settlement with the attorneys general. As many as 400,000 borrowers stand to receive modifications, and payment reductions could total up to $8.4 billion.
Holwell's ruling represents one of the first major judicial rulings on the topic of loan modifications since servicers' safe harbor was enacted in May.
Bank of America spokesperson Shirley Norton told the New York Times that Holwell's decision was not that safe harbor is inapplicable, but that the case does not fall under federal jurisdiction. Norton also told the Wall Street Journal that Bank of America will appeal the ruling.