Bank of America has agreed to buy back investments to the tune of $8.5 billion. Image: MoneyBlogNews/Flickr/CC BY

Bank of America Corp. agreed Wednesday to pay out $8.5 billion to investors who lost on mortgage-backed securities purchased from the lender. The blue chip investors claim the securities were of poor quality. The investments tanked when the bottom fell out of the housing industry. The payout could pave the way for some mortgage-related investors to bring action against other banks.

Investments of poor quality

The dispute started last fall when Bank of America received a letter from 22 investors. The letter claimed that mortgage-backed securities they bought from Countrywide Financial Corp. before the financial crisis did not meet the seller’s promises about the quality of the borrowers or of the collateral. The Charlotte, N.C. based bank acquired Countrywide Financial in 2008 for $4 billion.

The investors, which include BlackRock Inc., MetLife Inc., Pimco Investment Management and the Federal Reserve Bank of New York, paid out $105 billion total for the investments. The original face value of all the bonds covered in the deal totaled $424 billion. The investors were asking for $47 billion of the bonds to be bought back.

Not B of A’s first buyback this year

Bank of America already paid out $2.6 billion in buybacks to Fannie Mae and Freddie Mac in January, and $1.6 billion to insurance provider Assured Guarantee Ltd. in April. Because of these added expenses, the bank expects to report a net loss of $8.6 billion to $9.1 billion in the second quarter of this year.

CEO could be in hot water

The mortgage buyback deal is the largest ever in the U.S.  The Wall Street Journal speculates that the bank’s CEO, Brian Moynihan, who acquired the top job only a year and a half ago, may have reason to fear for his position. Last year, Moynihan vowed to fight “day-to-day, hand-to-hand combat” against investor buybacks and to “not just do a settlement to move the matter behind us.”

May pave the way for other buybacks

The precedent of this buyback deal may lead to others, says the Wall Street Journal. Investment holders, who feel their mortgage-backed securities didn’t perform the way they were promised may decide to seek similar deals with other major U.S. banks. Bank of America, JPMorgan Chase and Wells Fargo banks collect payments for about half of all outstanding mortgages in the U.S.

Sources

CBS
Wall Street Journal
AOL News

If the dirt Wikileaks has on Bank of America is released, prayers won't help a bit. (Photo Credit: CC BY-SA/Jonathan McIntosh/Wikipedia)

Wikileaks founder Julian Assange recently told British New Statesman magazine that if he is imprisoned in Guantanamo or killed – or if a serious attempt is made to shut down Wikileaks – a digital “insurance policy” that comprises 1.5 gigabytes of encrypted, incriminating data on Rupert Murdoch, News Corp. and two major financial institutions will be unlocked for the world to see. Bank of America, which has been confirmed as one of the two banks in question, is currently in full damage control planning mode, reports PRWatch. It is believed that Wikileaks plans to expose B of A’s reportedly unethical conduct relating to toxic mortgages, illegal foreclosures and the use of bailout money for employee bonuses.

Assange may prove B of A execs knew they peddled toxic mortgages

Private investors and large-scale lenders like Fannie Mae and Freddie Mac are currently suing Bank of America in order to force the bank to buy back billions of dollars in toxic mortgage-backed securities. While Bank of America did stop issuing its own subprime mortgage loans in 2001, PRWatch indicates that the bank still underwrote $239 million in securities back by subprime loans as late as Sept. 2009.

It is suspected that in the encrypted insurance file, Julian Assange and thousands of other individuals who have a copy of the file (minus the decryption key) are holding copies of e-mails that prove Bank of America executives knew they were passing off toxic mortgages to investors. If this is true, Bank of America will likely need much more than the $4.4 billion currently set aside to deal with its slate of toxic mortgage lawsuits.

Bank of America’s alleged illegal foreclosures and bonuses

Illegal foreclosures – particularly of the wrong homes – have been another thorn in Bank of America’s side lately, although the bank has attempted to shift blame to the contractors it uses to perform the home seizures. If Assange can prove that Bank of America signed off on thousands of foreclosure documents without proper review, he will prove that Bank of America broke the law.

Add to this the list of claims Bank of America still faces after the Countrywide subprime debacle, and the corporate bonuses taken from bailout money and it appears Bank of America could be in serious trouble.

Sources

New Statesman

PRWatch

‘An ecosystem of corruption’

Bank of America has just set aside some cash to compensate Freddie and Fannie for bad guaranteed loans the bank is responsible for. Image: MoneyBlogNewz/Flickr/CC-BY

Bank of America has reached an agreement to compensate Freddie and Fannie for selling them toxic guaranteed loans. The largest bank in the nation will pay more than $3 billion to the troubled mortgage houses. B of A is expected to take a loss on the deal.

Bank of America to make amends for bad guaranteed loans

Bank of America has finalized an agreement to compensate Freddie Mac and Fannie Mae for toxic mortgage assets sold to the two mortgage houses, according to MSN. Not all of the bad guaranteed loans were sold to Freddie or Fannie by Bank of America, however. The settlement is largely over loans that were originated by Countrywide, which was purchased by and merged into Bank of America in 2008. Prior to that, Countrywide had been one of the largest loan lenders in the nation for mortgages. Of all people who bought a home from New York to San Diego and all points in between before the 2008 mortgage crisis, about one in five got their home loans from Countrywide. Bank of America took over responsibility for all Countrywide assets, including settling with Fannie and Freddie.

Expected loss for largest national bank

It is expected that Bank of America, the largest bank in the nation, will file a $2 billion loss for the fourth quarter of 2010. The bank has set aside more than $3 billion for Freddie and Fannie for Countrywide mortgages and others sold to the mortgage houses. B of A has already bought more than $11 billion in bad bank loans from the two houses, with around $2.7 billion left. Still, Bank of America probably won’t need a cash advance to see the agreement to the end.

Mortgage houses still owed

Numerous large banks still owe Freddie Mac and Fannie Mae some considerable sums, as toxic mortgage assets sold to the two have to be either bought back or compensated for. The government still runs the two companies.

Source

MSN

The VIP loans Countrywide made in 2002 and 2003 are sparking ethics investigations. Image The Truth About/Flickr.

Several Washington D.C. lawmakers have been caught up in an ethics investigation over VIP cash loans given to their staffs. These “VIP” or “sweetheart” loans were all made by Countrywide, which was recently purchased by Bank of America. These VIP cash advances may end up causing ethical or legal problems for a few senators.

Countrywide’s VIP loans

In documents recently released by Bank of America, it was revealed that Countrywide wrote a huge number of “sweetheart” loans. These low interest rate, no credit check loan products appear to have been targeted to senators’ staffs. Republican Senator Issa, who filed an ethics complaint stemming from these loans, points out a “high concentration” of loans to D.C. staffers. The theory is that Countrywide wrote these fast cash loans in hopes of influencing Senator’s staff members and the Senators. The loans were made mostly in 2002 and 2003.

Ethics complaints over loans

Senator Issa filed the ethics complaints against several senators. Last year, Senator Dodd and Senator Conrad were both “scolded” by the Ethics Committee. These two senators were told to “be more careful to avoid the appearance of favoritism from Countrywide.” Despite the scolding, both senators were cleared of actual rules violations. Senator Robert Bennett has been named in the most recent ethics complaint. Twelve of the 30 named “VIP loans” went to members of his staff.

Naming the loan recipients

The Senate Committee on Oversight and Government Reform is doing the latest investigation on Countrywide VIP cheap loans. A subpoena has been issued to Bank of America to provide all loan documents where the VIP loan department issued loans to borrowers who listed “U.S. Senate” as their employer. Thus far, Bank of America has provided 37,000 documents related to Countrywide and their lending practices. If the loan recipients are actually named, it could be a serious issue in upcoming elections.

Senator Burnett responds

Republican Senator Burnett, who is not running for re-election, has responded in detail to the ethics complaint filed against him. In short, Senator Burnett said that he does not make it a point to find out where his staffers do their banking. Mortgages and unsecured loans, he said, are personal matters that he did not specifically ask his employees about.

Mortgage modification is key to the federal government's recovery plan - but deceptive lenders might undermine that effort. Image from Bohman on Flickr.

The Making Home Affordable Modification Program is a federal government program started in early 2009 as a response to the foreclosure crisis. It is intended to support mortgage modification, mortgage refinancing and other affordable home options for homeowners stuck in mortgages they cannot pay. This program, however, has been running into consistent problems with lenders. Bank of America’s recent settlement of a Countrywide lawsuit highlights mortgage industry practices that could be undermining economic recovery from the beginning.

Bank of America settles federal charges against Countrywide

The Federal Trade Commission has been investigating alleged deceptive mortgage practices at Countrywide for almost a year. In June of 2008, Bank of America purchased Countrywide in a $4 billion stock deal. Bank of America and the FTC have reached a $108 million agreement where BoA will pay restitution without admitting any wrongdoing on the part of Countrywide. This $108 million will be split between the approximately 200,000 Countrywide mortgage holders that the FTC has found were overcharged.

Complaints to the Making Home Affordable mortgage modification program

The Making Home Affordable federal mortgage program is administered through private lenders. The government provides support and guarantees, while private lenders are required to comply with federal guidelines and qualifications for mortgage loan modification. According to the most recent report from the Making Home Affordable Call Center, more than 31,000 callers in February of 2010 alleged that lenders were not complying with Making Home Affordable guidelines. 103,762 homes defaulting on their loans in just April, this means approximately 38 percent of borrowers seeking mortgage modification are finding lenders they believe aren’t complying with federal guidelines.

Alleged deceptive mortgage lending practices

The investigation into Countrywide’s alleged deceptive lending practices does not end with that lender. Some industry watchers allege that predatory lending practices permeate the entire mortgage lending industry. The four most common allegations from borrowers and the FTC include:

• Charging fees and fines that are not actually due
• Overstating the balance on a home loan, therefore extending payments
• Intentionally incorrect fees and charges
• Not complying with basic industry regulations, such as providing documented proof that the lender holds the mortgage

The end result of mortgage modification problems

It seems the the efforts of the federal government to rein in mortgage lending practices are coming in a day late and dollar short. The Justice Department has created a new unit to promote fair lending while StopFraud.gov aims to crowd-source uncovering predatory lending practices. For the Making Home Affordable program to work, however, the federal government is going to have to work hard to root out and stop the deceptive lending practices that nearly every large mortgage lender has been accused of.

Sources:

MortgageLoan.com
RealtyTrac.com
FinancialStability.gov February report