Quality Home Loans seeks court approval of settlement with Countrywide

By Jennifer Lanning Drey

Portland, Ore., Sept. 26 - Quality Home Loans requested court approval of a settlement agreement that would resolve loan and mortgage-related disputes between the company, Countrywide Loans, Inc. and Countrywide Securities Corp., according to a Tuesday filing with the U.S. Bankruptcy Court for the Central District of California.

According to the motion, Countrywide Loans purchased certain loans from Quality Home prior to Quality Home's filing for Chapter 11 bankruptcy protection. Countrywide said it agreed to use its best efforts to securitize some of the mortgage loans in a mortgage-backed securities offering, but the company later informed Quality Home that it would proceed to sell the loans in the whole market.

On July 31, Countrywide Securities completed a mortgage-backed securities offering, which was comprised of the mortgage loans purchased from Countrywide. Roughly $22 million of the securities remain unsold.

Countrywide previously requested, in a stay relief motion, court permission to transfer the servicing for the loans from Countrywide to Quality Homes and to market and sell the loans and remaining securities.

Settlement terms

Under the settlement agreement, Countrywide would grant Quality Homes an option to repurchase the loans from Countrywide through Oct. 26 and would further agree not to sell the loans to another buyer without Quality Homes' approval.

If Quality Homes exercises the option to repurchase the loans, Countrywide would give Quality Homes a $72,9000 credit against the purchase price, and Countrywide would have a lien on the net proceeds for future appreciation of the loans in order to secure payment of a pre-bankruptcy trust deficiency amount.

If Quality Homes does not exercise the option to repurchase the loans, Countrywide would be granted immediate relief from the automatic stay, including selling the loans.

Additionally, Countrywide would be allowed to sell the remaining mortgage-backed securities to any party, while any sale of the securities to Quality Home would be at Countrywide's "take down price."

Countrywide will pay Quality Home any net proceeds for the remaining securities, provided that Countrywide can set off a pre-bankruptcy trust deficiency amount against the sale proceeds.

Quality Home will prepare a reconciliation of all mortgage loan trust funds received in connection with the loans and any other mortgage loans it services and will remit the funds to Countrywide in two installments.

Countrywide will also have a superiority administrative lien claim for any deficiency in the trust funds resulting from Quality Home's use of the funds while in bankruptcy.

A hearing has been scheduled for Oct. 9.

Quality Home Loans, an Agoura Hills, Calif., mortgage lender, filed for bankruptcy on Aug. 21. Its Chapter 11 case number is 07-13006.

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