Are taxpayers getting the shaft in Bank of America's big mortgage putback settlement?
Rep. Brad Miller, a North Carolina Democrat who is a longtime critic of the big banks' mortgage lending misdeeds, contends they might be. He wants a top federal regulator, the Federal Housing Finance Agency, to join investors who are trying block the megadeal BofA (BAC) unveiled late last month, according to a letter he sent the FHFA this month.
BofA said June 29 it would pay $8.5 billion to resolve mortgage-repurchase claims filed last fall by major institutional investors including BlackRock and Pimco. Under the deal, Bank of New York Mellon (BK), the trustee for the trusts holding residential mortgage-backed securities issued by BofA's Countrywide unit, won't force BofA to repurchase mortgages that failed to meet the bank's underwriting guidelines.
BofA called the settlement an "important step" in moving past the problems it took on in its 2008 acquisition of Countrywide, the giant subprime lender that nearly collapsed in the early stages of the financial crisis. Investors have feared that the Countrywide deal exposed BofA to massive repurchase costs due to Countrywide's apparent failure to abide by the so-called representations and warranties in bond offering documents.
Miller, who has been complaining for years about the big U.S. banks' failure to lend responsibly and about regulators' failure to rein them in, suggests in the letter that the BofA settlement may be a better deal for BofA than for holders of mortgage-backed securities – including U.S. taxpayers, thanks to the bailouts.
Miller's July 8 letter to FHFA acting chief Edward DeMarco notes that BofA's settlement amounts to just 2 cents on the dollar of the bonds' initial par value and just 5 cents on the dollar of the bonds' remaining unpaid balance.
That's not much – and the difference could be coming out of your pocket, Miller contends. He writes that Fannie Mae and Freddie Mac, the government-backed mortgage investors that were bailed out by Treasury in September 2008 and are now overseen by the FHFA, have "suffered substantial losses" on investments in the securities that are subject to the settlement. He didn't offer any specifics on the losses.>
Because protecting taxpayers should be the "polar star" of the FHFA, Miller writes, he has urged the agency to "zealously" pursue legal claims against banks that sold mortgage bonds.
An FHFA spokeswoman said the agency has received the letter and will respond to Miller. BofA declined to comment.
A group of bondholders calling itself Walnut Place filed court papers last week claiming the settlement favored big firms with regular business with BofA at the expense of less well connected investors.
Miller makes that case as well, writing that more than 60% of Bank of New York's trustee business comes from Bank of America.
The notion that taxpayers are footing the bill for BofA's mortgage problems isn't a new one either. A mortgage putback settlement the bank reached in January with Fannie and Freddie was received scathingly by critics of the big banks, who argued the administration would do anything to avoid a housing downturn.
Miller stops short of conspiracy theories but contends the government must be more forthcoming about the banks' response to the housing crisis.
If nothing else, he says, the FHFA should disclose what it knows about Fannie and Freddie's losses on mortgage securities covered in the settlement -- including whether BofA and the Bank of New York have responded fully to subpoenas the agency issued last year to determine whether bond-issuing banks should make good on Fannie-Freddie mortgage-bond losses.
"It is important that the American people know that their government is acting on their behalf, not on behalf of powerful financial institutions," Miller wrote.
BofA chief Brian Moynihan isn't making many people happy lately, but he made Wilbur Ross' day Friday.
Shares of Assured Guaranty (AGO), the Bermuda-based bond insurer that the billionaire vulture investor (right) bought into three years ago, surged as much as 30% after Bank of America (BAC) agreed to pay it $1.1 billion to close out policies backing 29 residential mortgage securities.
The deal, which eliminates any risk that Assured Guaranty will have MOREColin Barr - Apr 15, 2011 12:27 PM ET
Cleaning up the mortgage mess isn't getting any cheaper.
The banking industry could find itself picking up a $60 billion tab for souring home loans, Standard & Poor's Ratings says in its latest report on so-called mortgage putbacks.
When S&P last looked at the issue in November, it said the six biggest U.S. lenders faced $43 billion in mortgage-repurchase costs. That was itself up from July's estimate, which held that the leading MOREColin Barr - Feb 8, 2011 12:48 PM ET
Some New Year's resolutions pay off earlier than others.
The newly cooperative Bank of America (BAC) set off a big bank stock rally Monday by resolving some worries about the cost of its bubble-era bad lending antics.
BofA agreed to a $2.8 billion settlement of mortgage-repurchase claims by the government-sponsored housing companies Fannie Mae (FNMA) and Freddie Mac (FMCC).
Shares of BofA, the nation's biggest lender by assets and the biggest mortgage servicer as well, MOREColin Barr - Jan 3, 2011 11:42 AM ET
The government restructured its majority ownership of Ally Bank in a deal that aims to speed its exit from the $17 billion bailout of the former GMAC.
Treasury will boost its common stock stake in Ally to 74% from 56% under the deal outlined Thursday afternoon. Under the arrangement, Treasury will convert $5.5 billion of preferred stock to common shares.
The government emphasized that the deal will "accelerate Treasury's ability to exit its investment MOREColin Barr - Dec 30, 2010 4:48 PM ET
Would Bank of America rather switch than fight?
Shares of BofA (BAC), the nation's biggest mortgage lender, rose 1% early Thursday on a report the bank is discussing settling a dispute with bondholders who want BofA to buy back soured mortgages.
The bank said Wednesday afternoon it was taking steps to "continue constructive dialogue around the concerns raised" by the investors, including well connected money managers Pimco and BlackRock (BK) and the Federal Reserve Bank MOREColin Barr - Dec 16, 2010 10:05 AM ET
The big banks could fork over $52 billion to make good on souring mortgages sold to investors, a government watchdog said.
But the Congressional Oversight Panel also warned that the toll could be far higher – and that as a result the U.S. financial system is still in a "precarious place."
The panel's estimate of the losses that could be facing Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and MOREColin Barr - Nov 16, 2010 6:36 AM ET
So far, so good on the mortgage crisis, Goldman Sachs says in its latest quarterly filing.
Investors have been anxious about how much various banks could end up paying to make good on problem loans they sold during the housing bubble. Wall Street analysts have produced widely varying estimates of the scale of the so-called mortgage putback problem.
Goldman (GS) wasn't a big residential lender, and its mortgage-backed securities dealings during the MOREColin Barr - Nov 9, 2010 11:38 AM ET
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