So what to make of the Bank of America settlement reported yesterday? At first blush, it appears to be another backdoor bailout of this TBTF bank. According to Barry Ritzholtz, the settlement amounts to 1 cent on the dollar of potential put back claims.
A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.
The stock market cheered with B of A shares up 6.4% on the day on the belief that this settlement helps “size” the remaining settlements the bank will have to make.
According to the Wall Street Journal,
…some investors wonder if Fannie and Freddie actually got the best deal possible, or where looking to help reduce the unease around mortgage-repurchase risk that has dogged financial institutions and B of A in particular.
Brian Moynihan, CEO of B of A, may have nailed it best in his cryptic statement, “These actions resolve substantial legacy issues in the best interest of our shareholders,”
Taking that at face value, B of A won the negotiation in favor of its shareholders and against the shareholders of Fannie and Freddie, that is, us.
This particular fraud is just one fraud. One of the better write-ups recently was by Zero Hedge and has to do with the representations made by B of A in the sale of MBS to Allstate, which is representative of sales of MBS to everybody under the sun. Allstate has filed suit against B of A on the basis that the quality of the securities and the mortgages in the securities was appreciably less than represented. In other words, there were already embedded losses in the securities and B of A knew it and sold it to a trusting buyer.
To sum it up, nothing new to report here.