As noted earlier this week, the one cent on the dollar Bank of America/Freddie Mac settlement was a huge potential windfall for the bank, and a royal screwing for taxpayers.

Originally, Fannie Mae and Freddie Mac sought to recoup losses on structurally-flawed mortgages purchased by the GSEs that were created with faulty data, fraudulent disclosures as to borrowers’ FICO score, income and LTV for houses. To date,  Bank of America received more than $21 billion in demands to buy back loans from the GSEs.

Want additional proof as to the non-economic basis of this settlement ? Bank of America made the claim the $2.8 billion accord with the GSEs was a “necessary step” in the housing recovery. This suggests to me that the sweetheart deal was rationalized by Treasury as part of a bigger housing rehabilitation concern. Hence, the huge giveaway.

As I have noted repeatedly over the years, the Fannie/Freddie bailout has been a back door bailout and a continual gift to the big banks. Apparently, readers of the Big Picture are also found in Congress:

“The deal “may have been both premature and a giveaway,” said Waters, a California Democrat, in a statement. The accord may “amount to a backdoor bailout that props up the bank at the expense of taxpayers.”

The agreements resolved claims from McLean, Virginia-based Freddie Mac on 787,000 loans with unpaid principal of $127 billion sold through 2008 by Countrywide Financial Corp. The deal with Washington-based Fannie Mae resolved claims on about $4 billion in loans, Bank of America said.”

’nuff said.

>

Previously:
GSEs: $1 Trillion Dumping Ground for Bad Bank Loans (June 14th, 2010)

Fannie And Freddie And the Backdoor Bank Bailout (May 12th, 2010)

Guess Who Benefits Most From Foreclosure Abatements? (August 16th, 2010)

BofA Freddie Mac Putbacks Resolved for 1¢ on $ (January 4th, 2011)


Source:
BofA Says Fannie Deal a ‘Necessary Step’ in Housing Recovery
Hugh Son
Bloomberg, Jan. 5 2011
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aO_3cqlG37NQ

Category: Bailouts, Real Estate

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.

25 Responses to “Economics Alone Did Not Drive BAC/FRE Settlement”

  1. As I have noted repeatedly over the years, the Fannie/Freddie bailout has been a back door bailout and a continual gift to the big banks.

    Bingo!! And if anything leads to the downfall of the current President(meaning he loses re-election), this will be it.

  2. FrancoisT says:

    As reported en passant by Yves Smith, Tim Geithner and his team at Treasury strongly believe that America’s big banks ARE the American economy.

    That would explain why Treasury has ALWAYS worked against anyone who could even merely inconvenience the big banks, rule of law be goddamned.

    Obama is so lucky to have a batshit crazy GOP as opponent; no one can touch him in 2012 and he knows it.

  3. DeDude says:

    “To date, Bank of America received more than $21 billion in demands to buy back loans from the GSEs”

    “The agreements resolved claims from McLean, Virginia-based Freddie Mac on 787,000 loans with unpaid principal of $127 billion sold through 2008 by Countrywide Financial Corp”

    I just don’t get these two quotes. How can the total disputed amount from both GSEs be 21 billion, yet the agreement resolve claims on 127 billion of loans for Freddie?

  4. KidDynamite says:

    Barry – doesn’t it scare you when you agree with Maxine Waters?

    ~~~
    BR: Yes

  5. ByteMe says:

    DeDude: “unpaid principal” is the total amount of the loans outstanding, not the underlying asset value or even a comment about whether the loans are being paid off. Asset values will still be pretty significant in case of foreclosure. I’m thinking this just resolves some of the difference between the loan values and the asset values that were (falsely) claimed during underwriting, reducing the loss that the GSE would have to absorb.

    At least that’s the way I’m reading the info. Perhaps BR will correct my flawed interpretation.

    I still think BofA should have to eat their own dog food, but that’s not going to be allowed to happen in our Corporatocracy.

  6. profoundlogic says:

    Looks like Griftopia is out of the gate in full stride for 2011. At what point to taxpayers start demanding their money back from the Treasury? If the government is going to force the populous to aid and abet known criminals through a continuous flow of funds into the Treasury, at what point does the system collapse?

  7. Mannwich says:

    LOL KD. I had similar thoughts, actually!

  8. Mannwich says:

    @profoundlogic: That’s what untapped credit cards are for. Get your credit score up and accumulate several no fee cards for that day if/when you need your own personal bailout and take back the one you were forced to give to criminals back in the day.

  9. profoundlogic says:

    To Mannwich: Interesting thought. We could start with a few cards from Citi and BOA and just call them “special purpose vehicles”.

  10. Greg0658 says:

    “Please use the comments to demonstrate your own ignorance, unfamiliarity with” .. ok thanks BR

    DeDude: “unpaid principal” and ByteMe … has some law been invented that strips MEW from property and passes it somewhere else ?

  11. Moss says:

    The real question is what has been done that did NOT benefit the corrupt bankers? Virtually every action for the last two plus years has been some sort of bailout for the banks. Front door, back door, side door you name it every door has been opened and even new ones created.

  12. b_thunder says:

    And what is Congresswoman Waters going to do about it? Will she attempt to start congressional investigation into potential fraud and embezzlement of taxpayer funds on a grand scale? Is she going to try to refer the case to DoJ?

    Think again! Timmy G has “full confidence” of the President, right? And Congresswoman Waters will never, ever do anything to upset THIS president.

  13. Mannwich says:

    Exactly profoundlogic. There’s always a way. Just play your cards right.

  14. wally says:

    “mortgages purchased by the GSEs that were created with faulty data, fraudulent disclosures as to borrowers’ FICO score, income and LTV for houses…”

    A bailout is bad enough. Paying to reward criminal activity is a magnitude worse.

  15. Mannwich says:

    @Moss: Think about it. Most of our elites either work in the banking biz in big jobs, have worked there at one time (and maybe plan to go back), have friends that work there, or have worked there, have family members that work there, or have worked there, or have campaign contributors that work there, or have worked there. Shuffling paper around and the banking industry IS our economy now.

  16. carleric says:

    As long as Geithner heads up the Treasury there is no hope that any bank or banker will ever be held acountable for anything. If stupidity and greed were crimes perhaps some state AG could pursue these bailout beneficiries but that is just a dream. You can bet your life that no DOJ headed by another Obama appointee will ever do anything other than still have lunch together? This is the Chicago political machine is full operation.

  17. “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

    some things should be (re-)read..
    ~~

    as a +, “SpellChek” thinks ‘memes’ is misspelled..

  18. readerOfTeaLeaves says:

    As I have noted repeatedly over the years, the Fannie/Freddie bailout has been a back door bailout and a continual gift to the big banks.

    Keep hammering, BR.
    As someone with no background (and not much interest) in finance until around 2007, I sure didn’t get it.
    Reading about the implications of The Meltdown has been like following an epic crime story, and we’re still a long way from seeing the credits roll.

    Please continue to explain this point for the sake of people like myself who knew there was something wrong, but didn’t have the leisure, background, or information to connect the dots.
    Trying to understand the specific activities involved in the ‘back door bailout’ via Fannie and Freddie (explained by you, Yves, and Dylan Ratigan) has simply boggled my mind.

    Haven’t yet read “Bailout Nation”, but it’s among the next books I’ll be purchasing.

  19. Mannwich says:

    Speaking of bailouts, I wonder why we don’t hear any of this from GOP hero and blowhard Chris Christie? This is what happens when you continually rob J6P to pay (and bail out) criminals (Wall Street).

    http://www.nakedcapitalism.com/2011/01/nj-public-pension-slugfest-reporting-omits-15-years-of-governors-stealing-from-workers.html

  20. rktbrkr says:

    F&F have always been viewed as Democrat creations – monstrosities by the Rs. And when they need (fill in a figure) of additional funding to cover this giveaway the Rs will be howling again about how F&F created the real estate crisis – blaming Roosevelt, Clinton (they blame Clinton for everything anyway) and O’Bama.

    Are the banks into the admin so deeply and completely that O’B approves a plan drafted by the Republican National Comm and their Big bank cronies and then Turbo Timmy hand delivers it?

  21. rktbrkr says:

    OK I’m going to be very naive here but aren’t F&F under court administration now? Don’t their executors have fiduciary responsibility to obtain the best terms esp on a deal this big? Doesn’t a deal of this size require the courts approval? Aren’t the courts an independent branch of government anymore?

    Although I guess with this size giveaway BAC can afford to stuff the pockets of all 3 branches of government.

    I think we should all run out and buy the largest containers of vasoline we can find because we’re going to get pounded for decades paying for these giveaways.

  22. DeDude says:

    I am still just trying to get the basic facts established such that the outrage at least is anchored to reality, rather than some pie-in-the-sky BS big number. The 21 billion would be the balance on loans that both GSEs think they might have a legal right to send back to BoA, based on misrepresentation. The 127 billion could be the remaining balance on all of the Countrywide (now BoA) loans to Freddie (most of which were not misrepresented and, therefore, could not be returned to BoA). To me the biggest outrage is the more than 100 billion worth of Countrywide sh!t that Freddie took knowing perfectly well what they were getting – and being pushed by the Bush administration to take it because everybody else were getting out of that business (and someone had to be the bag-holder).

    What we need is pure apples to apples comparison. What was the total amount of settlement compared to the total outstanding debt on the specific loans settled – and who ends up with the legal rights to recover additional money from selling the property. None of the given numbers allow us to know or even guess that.

  23. rktbrkr says:

    Be interesting to see what the non governmentals settle for with BAC, maybe more than a penny. Ummm maybe F&F went first to create a precedent.

    Many months ago I thought a good bank/bad bank would be created by shoving all the bad mortgages onto the backs of the F&F and let them eat the losses and manage the millions of foreclosed & abandoned properties. So if BAC cum CW, the worst of the worst, can do it for a penny maybe the others can do it scott free. Do F&F don’t show up on the national debt, these are still implicit guarantees? So we can pay off a couple trillion of bank losses dumped onto F&F thru something other than income tax? User fees for stuff like breathing and bodily emissions?

  24. jeff in indy says:

    wonder if BAC is going after the original originator (i.e., correspondent via C/W) to further pad the blow?

  25. Mrinkerton says:

    Of course, unmentioned amidst the ignorant populist rhetoric is that these are largely Countrywide loans, and the government also essentially forced BofA to go through with the Countrywide deal, or at the very least gave BofA an implict gaurantee on Countrywide in exchange for BofA buying it. In many respects this is a great site, but whenever the mortgage fiasco comes up, it simply is not accurate.