It looked like quite a coup when Bank of America announced a deal in June to settle putback claims with a marquee list of bond holders. The agreement called for the maligned bank to pay just $8.5 billion to settle claims on mortgage-backed securities that comprised roughly $175 billion in unpaid principal.

The 22 institutional investors that signed onto the deal included the Federal Reserve Bank of New York, BlackRock, Pimco and others. The stock soared on the news. But the enthusiasm dampened when the critics went public, taking to task Bank of America and trustee of mortgage pools Bank of New York Mellon for a host of issues.

The anti-settlement crowd won a significant victory when the New York Attorney General Eric Schneiderman announced that he is suing Bank of New York Mellon for failing to live up to its legal responsibilities as trustee for the mortgage-backed securities at issue. The AG charges that the bank failed miserably as a trustee in that it falsely led investors in the Countrywide pools to believe "that the lender had in fact delivered complete and adequate mortgage files for each loan as was required...the bank also misled investors by confirming that loan files relating to hundreds of thousands of mortgages were complete."

This is not hard to believe as the daisy chain of ownership of mortgage has broken down significantly across the industry. The AG also said that Bank of New York Mellon is conflicted, echoing claims by private investors who said that the conflicts stem from bank of America's agreement to cover legal costs for the trustee.  Bank of New York Mellon told the media the charges are baseless and outrageous.

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