We took an immediate dislike to the so called Bank of America mortgage settlement, in which the trustee for 530 mortgage trusts, Bank of New York, has entered into deal in which the bank will pay $8.5 billion to settle not only putback liability (having to compensate investors by buying back loans that never should have been put in the trusts in the first place) but also chain of title liability to investors (otherwise known as “my dog ate your mortgage”; note this would NOT impair the ability of homeowners to raise that issue in foreclosure).
We criticized the deal as being bad for homeowners (as in likely to accelerate foreclosures, rather than alleviate them, as claimed), bad for investors (due to the amount being too low for putbacks and an outrageous sellout based on the waiver for chain of title problems) and rife with conflicts of interest. Indeed, almost immediately after the settlement was announced, a group of investors who had been pursuing their own claims on three of the trusts in the settlement filed a petition as a means of objecting to the deal and its failure to provide a means for investors like them to opt out.
Two public officials, Eric Schneiderman, the New York attorney general, and Representative Brad MIller, who is a member of the House Financial Services Committee, apparently also suspect the pact does not pass the smell test and are asking some tough questions.
As described by both Bloomberg and Gretchen Morgenson of the New York Times, Schneiderman sent a letter to Bank of America and the 22 investors that suggested that he may oppose the deal. The bone of contention is that the parties that put this deal together failed to include or even consult all the investors (that is an allegation in the petition mentioned above). This is a non-trivial issue. Investors are afraid to sue Wall Street firms (they are concerned they will be excluded from information or otherwise relegated to less favored nation status, which would then hurt them competitively). So while they might have been able to register their views privately and anonymously if the attorney who put this deal together had been acting in their interests, by being exclude, the onus on them is now to sue, which is a far more visible and risky stance. Thus it’s entirely possible that the majority of the economic interests in most, even all, of these trusts are opposed to the deal, yet they’ve been effectively stymied by the way the settlement was put together. (It is stunning that the attorney, Kathy Patrick, is having her $85 million fee paid by Bank of America. Even if she obtained waivers, the optics and the incentives are clearly troubling).
Schneiderman’s list of questions also suggest other possible bases for objections:
Investment managers were asked to identify clients affiliated with New York state government entities and public authorities, as well as nonprofit or charitable corporations that invested in the 530 residential mortgage-securitization trusts established from 2004 to 2008, according to copies of the letters obtained by Bloomberg News. The letters also request the total par amount and current market value of all securities issued by the trusts covered in the settlement agreement for each client that meets the criteria.
This line of inquiry suggests that the AG’s office either has concluded the settlement is bad for investors or is at least investigating that theory and wants to be in a position to object. I would assume that the AG would act on behalf of any New York government entities and would further allege that the 22 investors had breached their fiduciary duty to the non-profits and charitable organizations (the investor equivalent of widows and orphans).
His emphasis on obtaining the dollar amount held in each of the various trusts points to objecting to the settlement on any trusts where a 25% (or possibly a 51%, depending on what basis he uses for his argument) threshold has not been met. One securitization expert who does not have a dog in this fight noted, by e-mail:
The investor group almost certainly does not represent 25% of each of the deals subject to the settlement yet the settlement seeks to waive future claims by investors in all of the deals. This suggests that BoNY, as trustee, is permitting the settlement to proceed on deals where the 25% rule hasn’t been met despite the clear terms of the PSA. Why would the trustee permit such a relaxation of the PSA rules in this settlement when it was so resistant to it in other cases (specifically the Greenwich Financial case)?
As we noted earlier, Bank of New York’s conduct on this deal stinks:
The biggest challenge, in the court of public opinion as well as presumably before the judge, is the idea that this is not at all an arm’s length transaction, and that the trustee, Bank of New York, is effectively engaged in self-dealing, selling out the investors to save its own hide. To put it more simply, parties that are presented as representing the investors’ interests are actually working to advance the BofA cause.
Bank of America gave the Trustee, Bank of New York, a side letter than indemnifies it for all liability incurred in entering into this deal. That means if any investors are unhappy, the costs are borne by BofA (the party that benefits from this settlement) not Bank of New York, the party supposedly representing the investors….
the side letter also indemnifies the trustee broadly against liability in the pooling and servicing agreements, the contracts that govern these deals. Since trustees like Bank of New York provided multiple certifications that the trusts held the assets (and that would include observing the chain of title niceties) when lawsuits all over the country have established that that did NOT happen. In addition, a senior Countrywide employee in testimony in Kemp v. Countrywide said Countrywide had retained the notes (the borrower promissory note) when the trust was supposed to have them. Whoops!
So the trustees have a ton of liability the are eager to escape. And that means that the indemnification in the Bank of America side letter is tantamount to a very big bribe to Bank of NY to go along with this deal.
In addition, as Adam Levitin and Tara Twomey discussed at some length in a law journal article on serving, trustees in general, and Bank of New York vis a vis Bank of America in particular, will be “deferential” to parties that provide them a lot of RMBS trustee business. Over 3/5 of BoNY’s RMBS trustee business comes from Bank of America/Countrywide.
The Bloomberg article also covers the response BoNY made in court to the challenge by the dissident investors. It seek to block discovery till other parties have objected. This gambit is not merely a delaying tactic but a ruse to neuter discovery, since the timeframe between the filing of objections and the court hearing is too short to allow for meaningful discovery to take place.
But even more brazenly, Bank of New York asked that no other parties be permitted to intervene in the case. That is a admission that it is not even trying to pretend to act on behalf of investors; it is actively trying to shut them down. And this bit is so disingenuous as to amount to misrepresentation:
As for its alleged conflicts of interest, Bank of New York Mellon said the governing agreements provided that the trustee be indemnified.
That’s irrelevant. The indemnification in question is not only broader than the sort contained in the pooling and servicing agreement (which does NOT contemplate more expansive waivers being entered into) but it specifically indemnifies BoNY from liability from investor claims, yet comes from Bank of America! The party that provides indemnification is almost without exception a principal indemnifying an agent, not the party on the other side. This arrangement is so irregular as to beggar belief.
But this should come as no surprise. Bank of New York has a history of slimy dealings. From Mark Ames, the former editor of the famed (one might say notorious) Russian newspaper Exile:
This is just sickening. Looks like this is a big part of the scam we’ve been looking for: moving the MBS’s onto Fannie/Freddie’s books, then settling for pennies on the dollar with no transparency and it’s all done and settled.
And in the middle of all this is BoNY, no stranger to plunder, fraud and covering everyone’s trails. BoNY was the bank used by the Russian oligarchs and by Yeltsin’s own family to steal tens or hundreds of billions in the 1990’s. At some point the whole scandal just got hushed up, a couple people took the fall and no one talked about it again. There was a point in mid-1999 when it looked like everyone from Yeltsin to IMF head Michel Camdessus, not to mention BoNY, were going down. Then some deal was cut that no one ever figured out–had to do with Yeltsin, Putin, the war in Kosovo…anyway, suddenly the Republicans lost interest in hearings and the whole thing shut down and that was that.
That brings us to Brad Miller’s concerns. The Congressman wrote to Ed DeMarco, the acting head of the Federal Housing Finance Agency. He raised the issue of the Bank of New York conflicts of interest and the questionable indemnification, and turned to the adequacy of the settlement and the failure to do any discovery:
It’s clear that Bank of America is trying to position this settlement as a “we’ve put this mortgage mess behind us” strategy. Fortune published a puff piece on its CEO Brian Moynihan, and it stressed the differences with his predecessor, Ken Lewis, and did a bit of “Mission Accomplished” cheerleading about the settlement. And as we indicated, the bank and the other parties to the deal no doubt had called in some chips to get Bill Clinton to tout it as good for homeowners.
But interestingly, the media is not falling into line, perhaps because the usual application of porcine maquillage cannot cover up how ugly the settlement is. Maybe they’ve learned from the crisis to be wary of banks claiming to have cleared out their toxic assets and exposures. Bloomberg ran an article on June 30 stating the obvious: a lot of investors think 2% of original par value is too cheap. Similarly, the New York Times carried a story over the weekend at odds with the Clinton/bank PR: the pact is meant to, and will, accelerate foreclosures.
As we’ve stressed, following the observations of Richard Bookstaber , in tightly coupled systems, measures to reduce risk typically do precisely the opposite. The Charlotte bank may have thought it had found a way to cut loose its chain of title risk and leave it stranded with investors. But the pushback on the settlement, which has the potential to put the level of the bank’s misconduct on the mortgage crisis, has the potential to bring this festering problem to a head.
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the banks can and will be defeated by a million cuts if the people in foreclosure challenge the plaintiffs ” standing” . even people paying their mtg have a claim to “quiet title”. both sides of the coin above can prevail if they just educate themselves and find an attorney whom “gets it”. the attorneys are starting to realize the game and opportunity in representing the homeowners.
You are missing the implication of this settlement. Bank of America was the originator of these deals and is now the servicer. They don’t own these mortgages, they were sold to investors. Investors could sue BofA, but this deal would have them waiving their rights for way too little.
This has nothing to do with borrower rights. I mentioned that clearly in the post.
Yes Yves,
“They don’t own these mortgages, they were sold to investors. Investors could sue BofA, but…”
But perhaps BofA owns what’s left of investors and wants to let them know they could be out of the club and on the street.
but aren’t we all 3rd party beneficiaries in these “settlements”?…
oh wait is says right here:
“No Person not a Party to this Settlement Agreement shall have any third-party beneficiary or other rights under this Settlement Agreement.”
doh! – guess we lose – those guys are smart.
Great article Yves. I think the details are difficult for the average person to understand, however it is clear to many that BofA and Bank of New York are trying to cover their own butts by creating this “settlement”.
This missing note situation is literally a house of cards on the verge of collapse, and the s#1+ is just starting to hit the fan. Kudos to you for posting your expertise and insights into this mess and a “that a boy” to Miller and Schneiderman for conducting investigations into these fraudulent dealings. These investigations are long overdue!
Geeze. Isn’t it a good thing these banks swore to change their evil ways and ‘bad behavior?’ Now they’re in charge of their own BILLion dollar settlements shorting their Investors in addition to the atrocities against the middle class Homeowners.
These guys don’t need to fail. They need to be plucked off the face of the earth.
Can we ditch Holder, Obama, Geithner, and Bernanke and put in Schneiderman, Smith, Morgenson, Black and Kaptur? Maybe we could move toward recovery and repair of our Middle Class and once Great Nation. Please don’t stop digging you guys. It looks like the banks are manipulating to protect in ALL directions. You must be about to uncover something REeally filthy here. God Bless!
When I think of Brian Moynihan or Barabra Desoer, I think of the song by John Lennon called Piggies:
So if it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!
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WHERE IS MY LOAN MODIFICATION BANK OF DESTROYING AMERICA!
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BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits.
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http://www.youtube.com/watch?v=ovD9rTzs2q4&feature=player_embedded
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Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.
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Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.
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In their ties with all their backing
They don’t care what goes on around
In their eyes there’s something lacking
What they need’s a damn good whacking.
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Everywhere there’s lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.
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When I filed my lawsuit against Bank of America, I thought of the many others out there in the same situation. It was then that we decided to educate the public on what these piggy banks are doing, as well as unite us all together as one voice. Please help me turn this David vs. Goliath modification process, into a Goliath vs. Goliath.
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Please stand with me and Brookstone Law Firm, and send an email to Bank of Abusing America that states that we will no longer tolerate their potentially illegal, fraudulent, irregular and abusive business methods.
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So please send your email directly to Bank of America and include the following:
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1. Your name
2. Your complaint concerning your experience with Bank of America.
3. Please end your email “I support John Wright vs. BofA Lawsuit!”
4. Please send a copy of your email to piggybankblog@earthlink.net
5. Please send your email to BofA CEO Brian Moynihan:
brian.t.moynihan@bankofamerica.com
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I HAVE HAD ENOUGH AND I AM FIGHTING BACK!
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I have created piggybankblog.com for all of those who have been abused by Bank of Destroying Americas potentially irregular, fraudulent and simply abusive home loan modification process.
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Divided we might have fell America. UNITED WE MUST STAND!
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http://www.youtube.com/watch?v=PoOJMr7OJ0s
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My name is John Wright AND I AM FIGHTING BACK!
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John Wright
piggybankblog.com
“At least they are consistent. BOA, in another attempt to use complexity to hoodwink investors and borrowers alike, has fashioned a “settlement” that is in actuality a cover-up for hundreds of billions of dollars in false assets on its balance sheet and liabilities that could reach into the trillions. They just don’t get it. Investors by definition have money. The megabanks may have drained all the resources available to homeowners but they didn’t get all the investors’ money. They have clout and they are using it.
In the end, the ONLY way out for BOA et al is to get a signature from the homeowners in at least 80 million transactions that have corrupted the title system in all 50 states. Without that signature, which is going to cost BOA untold billions of dollars, it will not be possible to sustain the foreclosures past, present and future and it will not be possible to sustain transfers of title or satisfactions of mortgage either. “
That would be true if the banks and title insurance underwriters weren’t comprised of the same principals, but they are. The potential for harm is on the part of investors losing lien interests, but it;s such a morass that the vast majority of them don’t have a clue which ones they actually own.
No potential harm for the pivot people in steerage eh? I beg to differ.
Whenever the military commences a new war, the sheeple are informed about eliminating a threat. Recent propaganda includes the image of a snake, citizens are reminded that missiles and bombs are on the way to “cut off the head” of the evil, crazy snake. We’re reassured that this will keep us safe, from flames, destruction or some pestilence from Leviticus.
When it comes to financial predation and the parasitical quest for profit, even the seemingly reasonable authors
will pretend that if only the system “were a bit more honest” and “didn’t fuck people so much”” all things Wall Street would be popular again, like it once was. Remember the US hey-day, when foreign violence, imperialism and fucking the 3rd world was hidden, passe, ignored and taken for granted.
Unfortunately, with the Banksters, a compliant press, and with an angry, misguided, retributive public- the discovery that our own Government, politicians, legislators and courts, are behaving at their unconscionable worst – as if once again it’s business as usual. It would be tempting to suggest massive retaliation, throwing bankers and their families into the street, suing them, attacking their character, and leaving them bankrupt, but those are the hallmarks of their aggressive, violent behavior, not ours.
Interesting to note the puff piece by Fortune Magazine on BofA CEO Moynihan.
Last week, Fortune published the mother of all cheerleading puff pieces on the bailout, discussing how it actually MADE MONEY. It’s worth reading just to see its preposterousness (e.g., the $2 trillion in junk assets the Fed has bought at par have made money because of the dividends they pay, though there is no accounting of the unrecognized write-down of the securities’ principal value below par).
http://finance.fortune.cnn.com/2011/07/08/surprise-the-big-bad-bailout-is-paying-off/
The Fortune (CNN/Time Warner parents) propaganda machine is in full-tilt mode.
Receivership.
I’m glad someone else picked up on “porcine maquillage”- perhaps the term will catch on.
“Porcine maquillage” Hilarious.
The rest, not so much. Thanks for staying on this.
Yves,
I very rarely disagree with you when it comes to Wall Street stuff, which is definitely NOT my beat. However, I feel compelled here to raise a few pointed questions.
1) What do Wall Street firms have to offer that is so far above the rest of the crowd in terms of investment opportunities? When I look at the long-term track record of REAL traders like Ed Seykota, John Henry, Bill Dunn, Jerry Parker, Liz Cheval, Salem Abraham, Arthur Fletcher etc. etc., I’m having a very hard time imagining that Goldman Sachs can beat these people day in day out. And even if GS et al. could beat them, (a very far fetched assumption) they sure wouldn’t spread such gravy to outside investors unless there was something awfully juicy for them, greedy basterds.
2) Don’t investors talk to each other sometimes? What would a Wall Street firm do against a consortium of investors which combined assets would dwarf the GDP of most small countries willing to sue the heck out of them? Call president Obysmal and send DHS SWAT team against the rebels? Intubate them? For a big bank, it’s one thing to threaten a small time lawyer like you related a while ago, but a huge white shoes firm acting on behalf of Abdul King of the Fuel? hmmm!
Color me curious and a tad skeptic.
Thank you and great work for excoriating this travesty of (airbag please) “justice”.
1. Big customers (pension funds) don’t invest in cross market opportunistic investors (save via an allocation to global macro hedge funds). They hire fund consultants who in turn have complete BS methodologies for asset allocation. They then invest in funds that have narrow mandates: international bonds, international stocks, domestic stocks (maybe some flavors within that, like small cap or high tech), and then a smallish (5-15%) allocation to private equity and hedge funds, with defined allocations within hedge funds (you can’t be a hedge fund, you need to have a clear style, like “convertible bond arbitrage” or “event driven” (the old risk arbitrage, which is speculation on takeovers) or “market neutral” (long and short stocks so your net exposure to the market is zero or close to zero).
The gatekeepers punish funds that don’t adhere to their “style” strictly.
This is all about not getting sued. If you hire advisors that follow the “best” accepted practice, that’s more important than actually doing well. And those investors you cite are also perceived to have investing styles that would break down if they had to manage serious institutional levels of money (ie, the opportunities they are finding are relatively small scale and they can’t find enough of them to deploy an order of magnitude more money and generate the same returns.
2. Institutional Investors actually DON”T talk much to each other. They are competitors, remember? Their customers are end clients, and they are competing to win business from them (75% of money management is getting the money). And they have no way of knowing who else is an investor in the same mortgage bond that they bought (someone has organized a big association of mortgage bond investors to try to deal with this collective action problem, but it isn’t clear what % of issuance is represented by this group).
Spot on, Yves.
Two articles on break-down of the principal-agent relationship in U.S. capital markets (some of it courtesy of the U.S. Supreme Court:
Why Stewardship is Proving Elusive for Institutional Investors
http://blogs.law.harvard.edu/corpgov/2010/07/31/why-stewardship-is-proving-elusive-for-institutional-investors/
This one is the doozy:
Janus Capital Group v. First Derivative Traders: Only the Supreme Court can “Make” a Tree
The Supreme Court decision in Janus Capital Group v. First Derivative Traders is one of those cases that takes your breath away. The case astonishingly holds that an investment advisor is not liable for fraud in the prospectus of a sponsored mutual fund because the investment advisor is not the “maker” of those statements – even though the fund’s officers are all employees of the advisor (and paid for that service by the advisor) and the advisor prepares, files, and distributes the prospectus. Nevertheless, says the Supreme Court majority, the advisor did not “make” the fraudulent statement, because the fund, a legally separate entity, had “ultimate authority over the statement, including its content and whether and how to communicate it.”
Okay, we get that the Supreme Court is hostile to the implied private right of action under Rule 10b-5 yet seems to regard its existence as a “super-precedent.” But Janus Capital Group does real damage. First, the Court seems willfully to deny what it should have learned about the functioning of mutual funds in last term’s advisory fee case, Jones v. Harris Associates. A mutual fund is hardly a free-standing entity bargaining at arm’s length with a supplier of advisory services, notwithstanding the “independence” of the fund’s directors. At a time when an increasingly large share of investment activity occurs through large pools of capital, the decision exacerbates the problem of “agency capitalism” – the tendency of the managing agents to pursue their own objectives at the expense of the ultimate beneficiaries. Why strain to find ways to insulate wrong-doers from accountability systems?
Second, one of the deep lessons of the 2000s, beginning with Enron and culminating with the financial crisis, is that purported gatekeepers to the financial system – accountants, lawyers, credit rating agencies, underwriters – often pursued their immediate economic interests at the expense of their critical gate-keeping function. Why encourage the creation of formal boundaries and the reallocation of “ultimate authority” so as to shift responsibility and accountability from actual wrong-doers?
[…]
http://blogs.law.harvard.edu/corpgov/2011/06/29/janus-capital-group-v-first-derivative-traders-only-the-supreme-court-can-%E2%80%9Cmake%E2%80%9D-a-tree/#more-19093
Yves – What if you live in a non-judicial foreclosure state? Does BofA’s standing problem on Countrywide notes translate to deficiency actions? Isn’t the note’s rightful owner(s) the only party with standing to sue for a deficiency after foreclosure?
As a NYS resident, I have sent an e-mail to AG Schneiderman thanking him for his standing up to the banksters and cite your blog. I invite other NYS residents to give the AG this support.
Thank you for fighting the good fight
Yves,
I read that the group involved in the negotiation had grown from the original $47B to about $200B. In that case they represent a sizeable portion of the total. Did your research turn up this number – can you verify? Seems to me it is a material item.
However, you imply that to achieve standing the group would have to have 25% of the investors (by dollar amount I assume) in each and every one of the 530 trusts. If this is indeed the case then the negotiating group has no standing and the deal is no deal at all.
Perhaps the thinking is that through the process of announcing the deal and petitioning the court that enough of the parties not involved in the negotiations will agree with the terms and then proper standing can be achieved.
Isn’t it usual practice for the suing party to have the defending and settling party pay the legal expenses? Why do you object to that in this situation.
You also seem to object to BAC indemnifying BoNY, but couldn’t BAC claim that BoNY was negligent in not informing BAC of improper mortgages that it was aware of (at least it was supposed to be aware of) and allowing BAC to attempt a cure before the mortgage went completely sour. BoNY would be negligent to both the trust holders and to BAC for not performing its fudiciary duty. So, BAC is providing indemnity for this situation.
Yves,
In the article you wrote when the investor lawsuit was first announced you assessed that you thought the deal would settle for about $600M (on the $47B that the intial group represented).
Now this deal is about 10 times larger ($454B) and the settlement amount is $8.5B. It seems to me that your initial analysis was insightful in that you stated it was very difficult to establish the loss associated with reps and warranties when there are so many other reasons for losses (like 7.6M jobs lost from June ’08 to June ’10).
It seems to me that this settlement is all about expediency. If your analysis was correct then this deal should have settled for about $6B. But, that would only occur after spending a bunch on litigation … does $1B in litigating expense even cover the cost for for 530 trusts? So, let’s say that is close and therefore BAC is looking at $7B or so if it defends against the litigation. Clearly BAC has agreed to a more generous settlement that will put the issue to rest in an expeditous fashion. .
I don’t see any nefarious intent in trying to cover all the liability that is out there. After all, the intent is to end the R&W lawsuits in totality (fraud is not covered). So, why not take the title rights question off the table, and anything else that could be construed as an R&W issue.
A pretty impressive set of investors are willing to take this deal. From your previous analysis it seems like it is a good deal – about 40% more than you thought was fair and the investors don’t have to take the chance that they would get less than that if they continued to press their claims. I would like to know if you can verify that the group that made the deal had grown to include investors in $200B of the $454B of face value.
There seems to be concern that somehow this deal was a ‘sweetheart’ deal for BoNY, that they were negotiating in bad faith, that the negotiations were secret, and that some investors had their interest in mind over other investors. Assuming that everyone is aware of the usual payouts for this sort of thing, as you outline in your analysis, is on the order of 1.3% why isn’t a settlement on the order of 1.85% consider a generous offer to put the matter to rest in an orderly and expeditous fashion?
I have doubts about your bona fides since you’ve read this post, some of my older posts and are mischaracterizing them and also presenting inaccurate information.
On your 9:40 PM comment, the $47 billion was the total par amount of bonds, the amount the group represented was ~$16 billion. The amount of investor represented this time was never disclosed, There were conflicting reports when the settlement was announced as to the TOTAL amount of bond involved. We have no way of knowing (unless and until it is disclosed, or compelled by Eric Schneiderman or FUFA) what % of each trust these investors own.
You are missing the point that this deal has never gotten to court, no case was ever filed, so standing is not (yet) an issue. This is all being done in the dark. The trustee in the past has fought cases on the basis of the 25% rule. However, on this one, it is getting a substantial waiver from BofA, one that includes chain of title issues, on which BoNY has massive liability. That’s worth a ton. And BofA is also a major customer, another reason for BoNY to waive the 25% requirement it has imposed when other investors have demanded that it act.
No, it is highly irregular to have the one side pay for the attorney of the other side. I’ve done a lot of deals, and I would NEVER want that to happen. It means you really don’t have anyone representing you, you’ve just converted your lawyer to effectively working for the other side. In litigation, the winning side often asks (but does not often get) the court to include an award of costs, which includes legal fees. But that’s by compulsion, after the event is over, and would not taint the loyalties or behavior of the attorney.
There is no case against BoNY as you allege. BoNY has no obligation to notify BofA of anything. Nor is BoNY a fiduciary. It’s a thin form corporate trustee. So your argument re indemnification is off base.
To your later comment:
I said that the rep and warrant case was worth a bit over $1 billion, tops, so 10X that is $10+billion.
My objection to the dollar amount is based on the fact that the deal includes a waiver for chain of title issues. That is hugely valuable, no one knows exactly how much, but the liability could exceed BofA’s equity. This is effectively being given away for nothing. So your economic analysis is wrong and misconstrues what I have said in every post I have written on the settlement.
The “nefarious intent” most assuredly is there. BofA wants to get as big a release as possible. But BoNY, which is supposed to act on behalf of investors, ALSO has massive chain of title liability. So it is doing this deal and screwing the investors to save its hide.
Re the investors, remember they are, for the most part, institutional fund managers (or the Fed, which does not care re maximizing its investment returns). We discussed how many of them also have conflicts of interest and probably don’t mind selling out their funds to accommodate BofA and the Fed, particularly to help “save” the mortgage industrial complex. We have also mentioned investor conflicts, apparently you read past that part.
I found the reference I had read before. It was in BAC’s 1st quarter 10-Q page 168. It says the group represented by Gibbs & Bruns had grown to $171B of original exposure and 230 trusts (as of March 31). When announced on June 29th the group proposed to settle for 530 trusts with $454B of original exposure. So, the number of trusts added in the 2nd quarter is not yet known.
Excerpt from BAC Q1 10-Q:
On October 18, 2010, Countrywide Home Loans Servicing, LP (which changed its name to BAC Home Loans Servicing, LP), a wholly-owned subsidiary of the Corporation, in its capacity as servicer on 115 private-label RMBS securitizations received a letter from Gibbs & Bruns LLP (the Law Firm) on behalf of certain investors in those securitizations that alleged a servicer event of default and asserted breaches of certain loan servicing obligations, including an alleged failure to provide notice to the trustee and other parties to the pooling and servicing agreements of breaches of representations and warranties with respect to mortgage loans included in the securitization transactions. The Law Firm has stated that it now represents security holders who hold at least 25 percent with respect to approximately 230 securitizations, representing original collateral exposure of approximately $177.1 billion. This matter is not reflected in the table entitled Outstanding Claims by Counterparty and Product Type on page 169 of this Note. To permit the parties to discuss the issues raised by the letter, BAC Home Loans Servicing, LP and the Law Firm on behalf of certain investors including those who signed the letter, as well as The Bank of New York Mellon, as trustee, have entered into multiple extensions to toll as of the 59th day of a 60 day period commenced by the letter. The Corporation is in discussions with the Law Firm, the investors and the trustee regarding the issues raised and more recently the parties have discussed possible concepts for resolution of any potential representations and warranties, servicing or other claims. However, there can be no assurances that any resolution will be reached.
From the nature of the investors represented, they would typically own the senior tranches rated triple A (when issued) and possibly they were willing to settle for something that covered most of their losses, but leaving investors who held lower rated tranches with no recovery.
Thank for mentioning the FHFA subpoenas. I noticed that acting director DeMarco drew a memo to Obama from two well placed senators or congressmen – I forget the details – within a week of issuing the subpoenas. The memo, addressed to Obama, said it was urgent to get a permanent head of the agency, one who would not be DeMarco.
Then Obama tried to appoint a well-qualified person but it was in effect vetoed and never came to confirmation. It seems like there is something moving around under the water that doesn’t want effective leadership for FHFA, and doesn’t want any questions about the PL MBS Fannie and Freddie were stuck with.
Looking at what MBIA and Ambac and anyone else who looked inside the files for the mortgages that were in the PL stuff found it is obvious that the 64 subpoenas would have produced a lot of stuff the banks don’t want made public.