American International Group Inc (NYSE:AIG) rejects BAC MBS settlement

Posted by Lynn Eisler July 1, 2013 0 Comment 1486 views


Bank of America Corp has rejected the bid to re-open the negotiations into its proposed $8.5B settlement with investors of mortgage securities. This indicates that it plans on taking chances that the New York judge will give the nod for the deal. American International Group Inc (NYSE:AIG) and the Federal Home Loan Banks of Chicago, Boston and Indianapolis who have objected to this settlement, sent the trustee overseeing these securities, the Bank of New York Mellon, a letter. This letter was filed in the Supreme Court in New York State Supreme on Thursday. It requested that the settlement discussions be conducted immediately. American International Group Inc (NYSE:AIG)  as well as the other objectors had complained that the accord will offer them only a small amount of the amount that they lost and that the negotiations had taken place without them.

What are mortgage-backed securities?

MBS are fixed-income investments. These investments generate interest-revenue via various home-loan mortgages pools. They are also called “mortgage pass-through certificates” or “pools” or even mortgage securities. They are an excellent current-income source. Although they lack the safety that government-backed Treasury issues offer, MBS are pretty safe. They also pay higher interest rates than Treasury issues and various investment-grade corporate bonds.

Certificate Holders

Mortgage Backed Securities investors’ own an interest in the mortgage pool that act as the underlying-asset for the MBS. Whenever homeowners make their monthly interest payment as well as the small portion of the principal amount, that money is passed on to the MBS investors. They are also called the “certificate holders.” Most of the mortgage-backed securities are issued by 3 primary agencies, the Federal Home Loan Mortgage Association, Government National Mortgage Association and the Federal National Mortgage Association. Only, a small portion of Mortgage Backed Securities are sold by some other approved lending agencies.

Unlike municipal bonds and treasury issues, Mortgage Backed Securities do not offer any tax benefits whatsoever. They are entirely taxable by local, state as well as federal governments. Investors in treasury securities receive interest payments two times a year while Mortgage Backed Securities investors receive their checks every month.


About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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