NEW YORK (TheStreet) -- Bank of America's (BAC) efforts to win approval for a pennies-on-the-dollar $8.5 billion mortgage-backed securities settlement may be complicated by a controversial eight-page report that was the subject of two days of New York Supreme Court hearings last week on the proposed deal.
The report's author, Brian Lin, one of three principals at an obscure firm called RRMS Advisors, earned $500,000 to write it and another $500,000 to testify in hearings over the fairness of the proposed settlement. Those details came out Friday during the 24th day of hearings over the settlement, according to CLSA analyst Mike Mayo, whose team has appeared regularly in court in order to follow the proceedings.
Lin was hired by BNY Mellon (BK), which was the trustee assigned to protect the interests of investors in 530 mortgage-backed securities trusts that faced losses estimated at $108 billion at the time the settlement was proposed June 29, 2011. Using data provided him by 22 investors in the trusts, including Goldman Sachs (GS), PIMCO, BlackRock (BLK) and the Federal Reserve Bank of New York's Maiden Lane entities, Lin determined the $8.5 billion settlement amount proposed by the group was fair.
The proposed deal has been called the largest private settlement stemming from the financial crisis. Objectors led by AIG (AIG) have said it is inadequate since it represents recoveries of only about eight cents on the dollar on securities stuffed with Countrywide mortgages that were fraudulent or in other ways did not live up to their original billing at the time they were sold to investors. On Thursday and Friday last week, AIG's attorneys tried to portray Lin's work as representing little more than a rubber stamp of the figures provided him by BNY Mellon and the 22 investors. BNY and the investors, according to AIG, were conflicted as a result of extensive business ties with Bank of America and so did not push hard enough to extract a larger settlement. CLSA's Mayo has a "sell" rating on Bank of America chiefly because of the risks he believes it faces if the settlement is thrown out. Relying on a pair of outside experts, Mayo believes Bank of America could face an additional $16 billion to $22 billion in additional legal damages if the settlement is rejected by Judge Barbara Kapnick. Most other sellside analysts who folllow Bank of America appear less concerned about the case. A call to Lin wasn't returned and Jason Kravitt, an attorney for Mayer, Brown, which is representing trustee BNY Mellon, declined to comment. The hearings so far have lasted 24 days and are likely to go on for considerably longer given that Lin, who finished his testimony Friday, was just the first of 16 people scheduled to testify. -- Written by Dan Freed in New York. Follow @dan_freed