A judge in New York has dismissed a lawsuit brought by investors who sought to compel mortgage giant Countrywide Financial Corp. and two subsidiaries to buy back home loans it modified.
New York state Supreme Court Justice Barbara R. Kapnick said in a decision announced Wednesday that Greenwich Financial Services Distressed Mortgage Fund LLC and QED LLC failed to comply with a procedural rule that required them to get the backing of 25 percent of investors in their funds in order to file a lawsuit.
The funds, which own securities made up of pooled mortgage loans, claimed Countrywide reduced payments due on hundreds of thousands of home loans by as much as $8.4 billion and failed to buy the mortgages back from investors.
The investors claimed Countrywide was required under a contract to buy back any mortgages that it modified to lower borrowers' payments.
If forced to absorb lower payments on the mortgages, the value of the securities will decline, the funds argued.
William Frey, chief executive of Greenwich Financial Services in Greenwich, Conn., said Wednesday those issues remain unresolved by the ruling.
"This case was not decided on the merits, it was decided on a procedural issue," Frey said, adding that his lawyers are deciding whether to appeal the decision or refile the lawsuit.
Bank of America Corp., which acquired Countrywide in July 2008, said it was pleased with the court's decision.
The lender called Greenwich's case an ill-conceived lawsuit that would effectively halt all modifications of distressed mortgages.