Investors might fight Countrywide pact

Countrywide Financial Corp.'s agreement last month, which requires it to relax the terms of 400,000 mortgages, was good news for struggling homeowners.

But a New York law firm says the settlement isn't fair to the people who invested in Countrywide's mortgage-backed securities, and it's trying to drum up interest in challenging the settlement.

That has some consumer advocates and lawmakers who pushed for the loan workouts up in arms, saying that their work will be unraveled and that homeowners will suffer. Some of the investors, who have already taken substantial losses because of the withering housing market, say they could lose even more if those mortgages are renegotiated.

Successful or not, the potential lawsuit is a reminder that fixing the mortgage meltdown will be as complicated as the web of investors, securitizers and second-mortgage lenders holding stakes in almost every mortgage. The law firm, Grais & Ellsworth, held a meeting yesterday in New York for securities investors interested in taking legal action against Countrywide and its parent, Charlotte, N.C.'s Bank of America Corp.

Bank of America Corp. bought Countrywide, a California mortgage lender known for exotic loans, this summer. North Carolina and other states filed complaints alleging that Countrywide used unfair and deceptive tactics to give homeowners loans they couldn't afford. Last month, Bank of America settled those suits by agreeing to $8.4 billion worth of mortgage modifications, also called loan workouts, which can help struggling borrowers avoid foreclosure with measures such as reducing their interest rate or waiving late fees.

Grais & Ellsworth may challenge the settlement because it says Countrywide is violating its agreements with securities investors. According to the law firm, those agreements require Countrywide to repurchase any loans that it modifies or any loans that violate standards on predatory lending. Countrywide has not said that its loans were unlawful.