As discussed previously, this is no longer about deadbeat borrowers: Mortgage giant PIMCO has just issued a giant F$%@ You to Bof A’s Countrywide division. Participating in the FU is the NY Fed.

And in case you forgot, PIMCO is an advisor to Uncle Sam.

There are two issues (Reps & Warranties) that could be the basis of the letter:  Procedural errors in the formation of the structured product, and Substantive misrepresentations as to the contents of RMBS/CDOs.

The procedural problems include errors such as failed assignments, broken title chain, lost notes, etc. I believe in many instances these can be cured by throwing money (i.e., staff, lawyers, etc.) at the problem. But there will be some cases where it becomes more challenging to get the toothpaste back in the tube.

The structural issues are primarily problems of how the structured product was described by its underwriters. If they warrantied to the buyer that only 15% of the notes were subprime, and the average Loan-to-Value (LTV) was 82%, and in reality its was 40% subprime and 96% LTV, then the underwriters have a big problem on their hands. The contracts are typically fairly specific as to what the structured product is composed of, and the warranties typically detail what the buyers rights are in the event that the warranties are not met.

I would bet that there is a notice requirement, and the letter from PIMCO and NY Fed is likely beginning that notice process.

Things are going to get very very interesting here . .


See also:

Pimco, New York Fed Said to Seek BofA Loan Repurchase.

Bank of America Sued by Chicago-Area Wholesale Bank

Category: Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “PIMCO, NY Fed Notifies Countrywide of Failures”

  1. wally says:

    And in case you forgot, PIMCO is an advisor to Uncle Sam.

    “Owner”, I believe that is… but so is BofA.

  2. alnval says:

    Calculated Risk describes this as the beginning of the pushback by private investors. PIMCO, Black Rock and the NY Federal Reserve are all seeking to force BofA to repurchase 47 billion dollars of questionable mortgages generated by BofA’s Countrywide Division. Let the games begin.

  3. VennData says:

    Ken Lewis decided he wanted
    More loans, and he was undaunted
    The man with bronze flesh
    Snared Ken in a mesh
    Hitting shareholders upside their head

  4. The easiest way to understand the importance of the note is this: it is like cash. You lose it, you are out of pocket.

    The fascinating thing is that mortgage backed securities have been around for 25 years, and the S&L crisis uncovered the same problems. Very odd that nobody paid any attention!

  5. Thor says:

    The beginning of the beginning of the end of BofA?

  6. rktbrkr says:

    BOA is fighting a 2 front war.

    Is Countrywide the exception or the rule? More claims against WaMu, Indymac, Wachovia (Golden West) and others of that ilk?

    Wonder how much bad mort paper the Fed took as collateral?

  7. Lugnut says:

    I was waiting for this shoe to drop….

    cue dramatic music.

    “Things are going to get very very interesting here . . “

    The Chinese “curse” comes to mind, “May you live in interesting times”.

  8. Lugnut says:

    Watching CNBC as I type….

    Maria is acting surprised about the announcement. How could anyone in this industry NOT see this coming?

  9. Kort says:

    Bank of America is about to become Bank OF America.

  10. RR111 says:

    Wow. PIMPCO with the best trade of the year. And to think, all they did was take the time to read the very straight forward PSAs.

  11. Mannwich says:

    Moynihan to media: “All is well, all is well, all is WELL!!!”

  12. grampa7 says:

    I am confused.

    If this suit is successful, wouldn’t the non-agency RMBS pools be able to take these mortgages (currently marked at 50) and give them back to Countrywide/BAC for cash at par?

    If BAC (and WFC, JPM by extention) were to take a hit of tens of billions, then the RMBS pools would be the direct benificiary?

    But why is the ABX indicies crashing?


    BR: We are discussing the legal rights of parties to a contract — and as noted above, its likely the requisite warranty notice required by the agreement.

  13. Mannwich says:

    @Lugnut: You have to ask that question after EVERYTHING that we’ve witness over the past 8-10 years or longer?

  14. [...] Pimco, NY Fed Notifies Countrywide of Failures (TBP) [...]

  15. PhilB says:

    Hey..there are no coincidences around here…

    1) Yes, a sufficient few insiders new that this could all end very badly

    2) Funny how the SEC just settled last week its case against Mozilo from Countrywide (usual nonsense of no guilt, small relative fine).

    Folks this is just disgusting…maybe this case will be the start of some form of accountability? Unfortunately it just looks like the powers that be are now fighting over who gets how much of the taxpayers dollars.

    Maybe some of us should learn a little french..and say “Non!”

  16. michael webster Says: October 19th, 2010 at 4:16 pm

    The easiest way to understand the importance of the note is this: it is like cash. You lose it, you are out of pocket.

    yet, another, commenter hints, at the edges, at the, *True, beauty, of the Con..

    the ‘borrower’ funds ‘his’ own ‘loan’…

    don’t mind it, though, YMMV, YOMP..

  17. Winston says:

    Interesting? You bet.

    The sophisticated investor, targeted as a mark in these scams, can afford sophisticated lawyers. I am anxious to see how many settlement offers will emerge. Conversely: how many are refused and proceed to trial.

    It would seem this is a prime opportunity for case law to provide reforms where our Congress failed to act. I hope exotic financial instruments die a hideous humiliating death from this litigation.

  18. I noticed CR took you off the 13 sites he’d link to the RSS feed of their headlines. Wonder why.


    BR: Dunno — perhaps you should ask him

  19. dss says:

    Task force probing whether banks broke federal laws during home seizures

    Federal law enforcement officials are investigating possible criminal violations in connection with the national foreclosure crisis, examining whether financial firms broke federal laws when they filed fraudulent court documents to seize people’s homes, according to people familiar with the matter.

  20. dss says:

    Now it comes down to who is going to eat the losses of these “investment grade” securities. I don’t think it will be Pimco if they can prove that Countrywide defrauded them.

    Nice settlement, Angelo!

  21. wngoju says:

    Now we’re getting somewhere…

    Wasn’t there a guy, AndyA or some such, here recently saying Foreclosuregate is just a bunch of bloggers acting out?

  22. dss says:


    Don’t worry, he’ll be back! Can’t let a good crisis go to waste.

  23. bergsten says:

    This is just so much fun.

    Maybe PIMCO, et. al. can use these guys to collect.

    @Thor — no, the beginning of the end of BofA was something like 20 years ago, about the time that they gave me an ATM card that was linked to no accounts.

  24. soloduff says:

    BR takes PIMCO’s representations seriously, while Yves Smith’s blog today does not–calling same a “nastygram,” puffery without merit. We have a conflict of experts! Who will prove right? (My bet is on Smith, if only because Smith brings forth a substantive argument, as opposed merely to retailing the claims of PIMCO et al. Plus I have long ago learned that the Big Boys bluff as frequently as the lowest card bum.)


    BR: You are on

  25. crunched says:

    Just the administration/Fed trying to throw ‘the mob’ a bone. There’s talk of ‘Inside Job’ being a contender for an Oscar in doc. category.

  26. hammerandtong2001 says:

    Putback festival.

    $47 Billion? By the time this is done, it’s going to be a lot bigger than that.

    So I guess those “technicalities” — like who actually has the note — matter a whole lot, after all.


  27. Thor says:

    Bergie – Hah, I was just hedging my comment ;-)

  28. Marc P says:

    @ dss said:

    “Now it comes down to who is going to eat the losses of these “investment grade” securities. I don’t think it will be Pimco if they can prove that Countrywide defrauded them.”

    How much MBS has the Fed purchased with newly-printed money? Ever wonder why the Fed refuses to disclose how much, from whom, and what was purchased? Are we to believe that the Fed knew nothing about the documentation problems?

    Are we to believe that the Fed will sue one of its major shareholders? Is this like the Goldman Abacus lawsuit — a big show, then a small settlement with no statement of wrongdoing, and the government announcing that it will not investigate Goldman further?

    How many of these problem loans have been refinanced by Fannie and Freddie? With a refinance all the banks’ documentation problems get washed away.

    The TBTF banks aren’t stupid. While America has been watching Kim Kardashian, the banks have been frantically solving their problems by pushing as much on to the taxpayer as possible.

  29. Andy T says:


    I never said such a thing and I never said it wasn’t serious. EVER. Your memory is “selective.”

    My claim was that the initial histrionics/”foaming at the mouth” over all the millions of “victims” over foreclosure-gate were exagerrated and that the number of homeowers being wrongly evicted was probably quite small.

    And, that seems to be the case…..

    The real meat of the case is now coming out and being hashed out among the “victims”: Pimco, Blackrock, FedNY, etc… Unfortunately for the media and bloggers, it makes for a much less “sexy” case than banks tossing out “millions” of innocent homeowners. For what it’s worth, I could care less about Pimco, Blackrock, etc…. I would have cared if innocent homeowner were getting wrong evicted.

    For the record, I advocated that all these banks be forced into bankruptcy at the time. There should have been NO bailouts at all. The real “bailout” has always been the bond-holders of these firms–firms like Pimco/Blackrock/Calpers. I wouldn’t mind seeing BAC get flushed down the toilet and go into receivership as I’m definitely short the stock market and long the DXY.

    I just hope that on the “next flush” the bondholders of the TBTF finally take their rightful hits, too.

  30. Andy T says:

    Unfortunately, NC throws a bunch of cold water on this….

    While I wouldn’t mind if BAC goes to Zero, it may not be until some much later date.

  31. dss says:

    Seeking a court order is more than just a “nasty gram”:

    The Federal Home Loan Bank of Chicago, claiming mortgage originators abandoned good underwriting and appraisal standards and engaged in predatory lending, is seeking a court order voiding its purchase of the securities and directing the defendants to repay it their value plus 10 percent annual interest.


  32. TakBak04 says:

    What I saw on CNBC today and elsewhere said… “BAC” will be in litigation for this for years…and so buy their stock because it’s either “Statute of Limitations Have Run Out” (from “Fast Money Suit” on CNBC) get’s UGLY!

    Does anyone remember that BAC was forced to BUY “Mozillo …Tan Man’s S**T as part of the BAIL OUT DEAL?

    I Googled to go back to our “short memories” and found these links. WHO wants BOA to GO DOWN? And, because they were forced to take “Countrywide..Mozillo S**T” should they REALLY GO DOWN? Who else is responsible for the MELT DOWN..after Lehman and Bear went down? Are there some Power Hungry Entities working to take out their competitors ONE BY ONE …working here? These Links are just a sample…the list on GOOGLE goes on and on and on.

    Here’s Google Links to how BOA was FORCED to take on CRAP…. !

    Search Results

    Bank of America to acquire Countrywide – Business – Mortgage Mess …
    Jan 11, 2008 … Bank of America said Friday it will buy Countrywide Financial for $4.1 … Deal for country’s largest mortgage lender valued at $4.1 billion … Along with the $2 billion investment from Bank of America, Countrywide was forced to … But analysts said it wasn’t enough, with one noting this week that … – Cached – Similar

    Business & Technology | BofA to Pay $4.1B to Buy Countrywide …
    Jan 11, 2008 … A buyout of mortgage lender Countrywide Financial likely would be approved by … Bank of America said Friday it will buy Countrywide Financial for $4.1 billion in stock, a deal that rescues the … Along with the $2 billion investment from Bank of America, Countrywide was forced to draw on an $11.5 ……/2004119645_apcountrywide11.html – Cached – Similar
    Bank of America to Buy Countrywide : NPR
    Jan 11, 2008 … Bank of America Corp. has agreed to buy Countrywide Financial for … Along with a $2 billion investment from Bank of America, Countrywide was forced to draw on an … But analysts said it wasn’t enough, with one noting this week that … “We are aware of the issues within the housing and mortgage …

  33. TakBak04 says:

    I didn’t press the issue enough… WAS BAC the fall guy for the worst of Mortgage Meltdown? Mozilla’s S**T!

    And just remember….”Nations Bank” was what BAC bought out… THIS STUFF WITH BANKS GOES BACK to MELT DOWNS from the Early 90′s… If you know your history!

  34. sahillyard says:

    Fannie and Freddie must have some of that junk as well. It is going to get interesting!

  35. tyaresun says:


    Why do you take this seriously. BAC owns a significant portion of Blackrock and Blackrock owns a significant number of BAC shares. Plus we have the NY Fed and PIMPCO. This smells really fishy to me.

  36. ToNYC says:

    The Financial Firms that ate of the poisoned flesh of Bear, Lehman. Countrywide, IndyMac and Wachovia are dead men walking and sucking the lifeblood of all living and furure US Citizens as long as the 535 give up their power to the Federal Reserve Act’s serial bubble blowers and creators of crack credit from which they develop a call on your assets and deny any value to your life savings preferring to invent more crack currency in your faces.

  37. mote says:

    Maryland Courts Ease Rules for Challenging Lenders’ Foreclosure Documents

    “Up to now, the courts have assumed the accuracy of the affidavits. Now, when asked by the court, the plaintiffs seeking foreclosure will be required to show why the affidavit shouldn’t be thrown out, ensuring only “genuine and valid” documents are used,”

    Florida Law Firm Bribed Workers to Forge Foreclosures

    (Florida AG releases statements from three more employees of the David J. Stern law firm)

    “Some employees of Florida’s largest “foreclosure mill” were given jewelry, cars and houses from the firm, in exchange for altering and forging key documents used to obtain foreclosures, according to a statement released today by the Florida Attorney General’s Office.”

    ACLU seeking records on Florida foreclosures

    “ACLU lawyer Larry Schwartztol said the records are being sought to see if the state’s recently created special foreclosure courts are taking shortcuts that may be violating due process rights.”