The banking gears of housing – Bank of America sells mortgage servicing rights on large loan pool to Fannie Mae. 400,000 loans shifted to Fannie Mae with $73 billion in unpaid principal.

Things just seem to get more perplexing with the housing market.  Back in August the Wall Street Journal discussed a deal between Fannie Mae and Bank of America.  The deal is odd even for the current banking system we have in place.  It was reported that Fannie Mae purchased the servicing rights to 400,000 loans for the grand total of $500 million.  Why would this be an issue you may ask?  Well first, Fannie Mae being a GSE does not specifically service mortgages so buying a pool of loans with unpaid principal of $73 billion seems out of place.  It also makes you wonder why a bank that has faced some troubles during the financial crisis would unload so many loans back to the government.  This concern clearly does not go unnoticed and a Representative from the housing battered state of California sent a letter to the Federal Housing Finance Agency (FHFA) asking for more details on the deal.

The letter from Representative Darrell Issa

letter to fhfa

Source:  Oversight Committee

In the letter, it is noted that the bank decided to sell the portfolio for a loss because the value of the loans were expected to deteriorate even further:

“The loans have a 13% delinquency rate, and more than half of the loans are in troubled U.S. real estate markets.”

Is this another form of bailout going on here?  Why would the bank sell such a large loan portfolio back to Fannie Mae which is now under conservatorship?  The pool of mortgages are already showing an unusually high default rate.  The housing market is unlikely to bounce back soon and to the contrary, is already showing signs of a further correction ahead.

Bank of America has taken a beating since the recession began in 2007:

bank of america

The stock price is down over 80 percent in the last five years.  Given the troubles with the bank, largely from bad loans, the letter states that it is:

“…unclear why the FHFA allowed Fannie to proceed with the transaction.”

It is likely we will have details emerging in the months ahead but unlikely to make any significant change for those in the market currently.  Some will target the government as being the problem and others will aim at the banks.  At this point, the banks and the government are one.  So a deal like this although shocking probably to most of you, is really something common in this financial bailout pattern.

It was also noted that last month’s surge in foreclosure activity largely came from Bank of America:

“(CNBC) It appears the numbers you noted to me this afternoon generally track with our own numbers for key categories.  It should be noted it’s driven more in key states like California and Nevada than overall, and certainly the progress we’re seeing is limited to non-judicial states. Judicial states continue to move very slowly, with key states like New Jersey only beginning to start processing foreclosures again this month.”

The shift of a large loan portfolio to Fannie Mae and the current urgency to sell mortgages is definitely a new twist.  The housing market remains in a mired state of problems with over 6 million mortgages now sitting in some stage of foreclosure limbo.  During the earlier days of the crisis Bank of America purchased troubled mortgage lender Countrywide Financial.  The bank seems to be leaving many doors open at this point:

“(Economic Times) NEW YORK: Bank of America Corp. (BAC), the lender burdened by its Countrywide Financial Corp. takeover, would consider putting the unit into bankruptcy if litigation losses threaten to cripple the parent, said four people with knowledge of the firm’s strategy.

The option of seeking court protection exists because the Charlotte , North Carolina-based bank maintained a separate legal identity for the subprime lender after the 2008 acquisition, said the people, who declined to be identified because the plans are private.

A filing isn’t imminent and executives recognize the danger that it could backfire by casting doubt on the financial strength of the largest U.S. bank, the people said. The threat of a Countrywide bankruptcy is a “nuclear” option that Chief Executive Officer Brian T. Moynihan could use as leverage against plaintiffs seeking refunds on bad mortgages, said analyst Mike Mayo of Credit Agricole Securities USA.”

Does any of this sound like the housing market is getting any healthier?  It is very likely we are going to have a troubled housing market deep into 2020.  Ask yourself this, why would a bank be so willing to unload 400,000 loans for $500 million with servicing rights when the principal due is $73 billion?  In terms of assets Bank of America is the largest bank in the U.S. and many other banks are likely to have similar issues given the problems in the housing market.

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7 Comments on this post

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  1. James Strong said:

    The mortgage portfolio BofA cannot unload is an illegal portfolio to begin with because is is what I call NON-Property. The industry-wide practice after the original was sold by the banks for securitization purposes had the acutal note and title transfers “wiped”, destroyed. Registrations of ownership of the papertrail was made by such processing agencies as MERS, but the actual documents of the notes and titles were never made…hence, securities owners have no been successful in Fed Court in repossessing what they claim is theirs as no actual paper trail exists…unless it was forged, robosigned, or even attested to by long dead notaries’ stamps (Florida case).

    Since Fannie is to have mortgage “servicing” rights, it must forge new legitimization documents, and thus continue the fraud, backing the fraudulent-to-be process with taxpayer liability. By transferring the servicing rights to Fannie, the mark-to-market process is kept under the rug, and a housing recovery is further delayed. There are about 6.5milllion mortgages in the shadow mortgage system awaiting repossession and foreclosure…which are worth practically …nothing, and continue to be hidden from view…apparently until they can be absorbed into the Fed govts agency hands and repackaged and sloughed-off to unsuspecting eg PRIVATE, public investment interests…eg…pension funds as the likliest customers…what a deal!

    The creation of Non-property by Federal intervention in the housing markets for “social justice” redistribution since inception in 1977 with the CRA passage is nothing but a fraudulent means of actually destroying the legal status of property for un-Constitutional redistributive goals.

    The destruction of the paper-trail is the actual tool that allows the illegal process to be established. The US Courts system is proving a difficult participant in the matter. Currently a US appellate Court in NY has ruled that MERS lack of actual transfer of original notes does not constitute a legal process.

    September 19th, 2011 at 9:41 pm
  2. James Strong said:

    Oh, I bet Fannie did not perform ONE forensic title and note search on a single one of the 400,000 mortgages in the interest of attempting to protect the taxpayer from a bad transaction with BofA.

    September 19th, 2011 at 9:51 pm
  3. Dumbfounded said:

    Is everyone enjoying this wonderful ride on the Titanic? Better reserve your seat on a life boat. There are not enough life boat seats for all passengers and the water is very cold. Don’t forget, Bankers and Politicians first.

    September 21st, 2011 at 5:54 pm
  4. Liz S said:

    Bank of America and Fannie Mae and Freddie Mac have one common denominator…. and it’s FMR LLC.
    Look it up and focus on ” beneficial interests”

    September 23rd, 2011 at 6:27 pm
  5. Can't believe it said:

    This is really bad. When I read that BoA bought CountryWide, I thought the CEO of BoA should be fired.

    And now they are dumping some of these on Fanny Mae. We, the American taxpayer, is getting screwed by actions like this. And the Banksters are still going home with bonuses, and huge salaries.

    They all belong in jail. And a cheap Jail at that.

    September 23rd, 2011 at 9:37 pm
  6. Anthony Teamson said:

    I am just a dumb schlub in the Northwest. Yet, even I knew that once, our financial lord god and absolute all glorious sage, Warren Buffett, put money into BOA, “we the people” would be absorbing BOA’s mortgaged loan portfolio loss. The peasants just love their down to earth billionaire aristocrats; and hate to see them suffer; especially when they call for tax hikes on the upper middle class, and millionaires. He really does feel their pain and only wants BOA’s balance sheet cleaned up so he can provide affordable housing for all the little people he cares so much about. The peasants just love their deep and intuitive analysis as to why BOA gets a pass, and oh, so how very smart they are.

    September 23rd, 2011 at 10:31 pm
  7. DC said:

    Its all going as planned with majority of housing owned by the feds.
    Under government housing law, currently citizens will have no search and seizure rights. They have the right to walk in your dwelling anytime they like. Its the new one world government that will dictate everything you do soon. Thats what is in our future because
    the economy is going to completely collapse soon. This is the control grid being put in place to take away all our freedoms and liberties …people !!!!!!!!!!! Wake up !!!!!!

    September 24th, 2011 at 4:08 am

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