Reuters is reporting that:

“Fannie Mae agreed to pay Bank of America Corp about 20 percent more than it was contractually obligated to last year in order to transfer the servicing of troubled loans to another firm, a report by a watchdog found.

In a report to be issued on Tuesday, the inspector general for the Federal Housing Finance Agency urges the regulator to ensure Fannie Mae applies more scrutiny to the pricing of such transactions and possibly revise its contracts with mortgage servicers.”

The entire backdrop to this transaction is problematic. An FHFA official “wondered whether Fannie Mae squeezed Bank of America hard enough on price considering the bank was benefiting by “getting this stuff off their books.

Making this even more problematic, Fannie Mae came up with the valuation by relying on a single contractor to come up with prices for most of the transactions.” In other words, this was a no bid deal that was based on one person’s opinion, no market pricing mechanism, and ended up a sweetheart deal for BofA.

Here’s the thing: This was no accident — it was by design. Starting with Bush, and continuing with Obama, the GSE takeover was an easy way to continue funneling money to banks with minimal scrutiny. This has been a pet peeve of mine for some time now, as the laundry list of previous posts (below) shows.

Think about that the next time someone tells you how much money Treasury has made on the bailouts.




Fannie And Freddie And the Backdoor Bank Bailout (May 12, 2010)
GSEs: $1 Trillion Dumping Ground for Bad Bank Loans (Jun 14, 2010)
Why You Really Should Be Angry About Fannie/Freddie (Dec 18, 2010)
BofA Freddie Mac Putbacks Resolved for 1¢ on $ (Jan 4, 2011)
Open-Ended Bailouts Are Continuing for Big Banks (Mar 25, 2012)
Government’s “Homeowner Relief” Programs Are Disguised Bank Bailouts (Aug 19, 2012)

Fannie Mae paid BofA premium to transfer soured loans: regulator
Rick Rothacker
Reuters, Sep 18 2012

Category: Bailouts, Credit, Really, really bad calls

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.

14 Responses to “GSEs Remain Backdoor Bailouts for Banks”

  1. NoKidding says:

    Highway robbery, yes.

    However the remains of the GSEs continue to make the whole mortgage market on behalf of the Fed/Treasury, which as far as I can see is the ONLY path between the plethora of bailout schemes and the common man. Would a sane business have any reason to take on 30 year illiquid 4 percent fixed assets right now, with the Fed more or less targeting inflation over 2percent?

  2. “…as the laundry list of previous posts…”

    yes, “laundry list”, how, very, apt.

    the GSEs, as you ~say, have been “Wall St.”‘s (& D.C.’s) Laundromat–able to ‘remove’, even, the most stubborn Stains (from their ‘Portfolios’)–for, now, many, Moon.

    “This was no accident — it was by design.”

    x2 ~!

  3. AHodge says:

    what was the payment for?
    if the servicing transferred to someone else?
    why do FF have any obligation to pay to transfer?
    why B of A keep handling it themselves (i know perfectly well why theyare massively incompetent)
    but in what way?
    why should they have any ?

  4. dsawy says:

    And this is news… because it’s different from what has been going on, or this is just a tad more brazen than in the past?

  5. b_thunder says:

    What is the Federal Reserve’s new from-now-to-eternity MBS buying program but another attempt at a bailout of the banks? Another avenue for the banks to DUMP the worst garbage onto the Fed/taxpayers?

    Of course, once the reflation is complete, the Fed will trumpet from all the rooftops that they “made money” for the taxpayers… Well, of course, if in 5 years the US Dollar will drop by 50%, that would make the Fed “whole.”

    And as far the Fed’s “official cover” for their actions that the MBS purchases would result in ‘substantial’ job growth – I don’t see the connection, unless the Fed is hoping for the creation of 1.5-2 million of new MBS trading jobs?

  6. Expat says:

    I am shocked to discover gambling at Rick’s.

  7. AHodge says:

    this is a nice catch
    its likely too complex to turn into a media whale
    but the bloomberg coverage makes it look like
    a functional bribe to give the servicing to someone more likely or capable to sort out whether reshedule/ short sale/ or foreclose
    B of A should be fined or charged with stomewalling resolution of these hapless people.
    why are FHFA still doing new business with B of allowing to operate in the systemA
    are we going to have to pay them to give that up too?
    B of A is not an institution that deserves to survive, muck less be constantly expensively rescued

    for my own B of A foreclosure threat i finally got through to someone in “audit”
    who said maybe they could look at it
    but first they would have to call off their foreclosure help and get my personal councilors approval that i dont need a reschduling
    . traded messges these peole dont have any contacts
    then they dissappeared, and i just again for the 70th time got certified mail talling me about all my wonderfulrescheduling options

    you know since they have ruined my credit rating and my ex wife
    over this outrageous bogus force place insurance scam
    i should stop telling them forget it
    i could easily pay i am just refusing to,
    maybe i just take theese idjits cramdown if its big enough?
    as my credit wrecked anyway.

  8. Greg0658 says:

    I’m with NoKid’g (I think) .. what would we have been doing this last decade to make jobs for All – but it not for McMansions and the 1, 2 and 3 homes for the able to sign on the line

    globalization is take’g its toll on joe6pack’s and BillWineGlass’s alike

    is all this paperwork mess efficient – NO – but its work

    efficiencies; dispersion; growing population; in a dwindling world of resources is butting heads

    picture’g: the bull try’g to gore the bear / the bear attempt’g to rip into the bulls gut

  9. CharlesII says:

    Isn’t QE a much larger and more dangerous way of bailing out the banks?

    Fannie and Freddie used to create the secondary market for mortgages, buying mortgages to allow the banks to recycle loan funds. Now, with the Fed buying up all sorts of paper, including MBS. That amounts, I would say, to superceding the function of Fannie and Freddie.

    Only, instead of re-selling the securities, the Fed holds them, creating a Bermuda Triangle of paper assets. When the economy picks up, and a demand for securities returns, the Fed thinks it will sell them and soak up any extra liquidity. But to the same extent that leakage from QE has boosted asset prices, undoing QE should depress asset prices. That, in turn, will lower economic growth.

    And, since liquidity will be falling, interest rates should rise. In a strong economy, no problem. The consequent rise in interest rates slows the economy enough to prevent inflation. But if the economy is not strong, then selling paper strangles the economy.

    Now, part of this is a genuine issue of required return on investment. To someone requiring a 7% return on investment, an asset is not worth what it is to someone requiring a 2% return on investment. So, the banks can sell sketchy paper to the Feds leaving both happy. If it turns out that the paper isn’t quite as sketchy as thought (thanks to a recovery and fewer mortgage defaults than predicted), then the banks are happy to buy it back again.

    But the more I read about QE, the less sense it makes to me as a national economic strategy. A real national strategy would improve productivity. That means infrastructure, improving health care efficiency, education, research investment, reducing spending on war, and solving national problems like the incarceration of millions over minor drug offenses. All the stuff we are not talking about.

  10. BusSchDean says:

    This goose seems well-cooked

    “Corporations are people, my friend,”

    “the trees are the right height.”

    “I will act to repeal Obamacare.” “Of course there are a number of things that I like in health-care reform that I’m going to put in place,”

    “I did go back and look at my taxes, and over the past 10 years I never paid less than 13 percent. I think the most recent year is 13.6 or something like that. So I paid taxes every single year”

    “No, middle income is $200,000 to $250,000 and less.”

    “I’m in this race because I care about Americans,” Romney said. “I’m not concerned about the very poor. We have a safety net there. If it needs a repair, I’ll fix it.”

    “All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. … My job is is not to worry about those people.”

  11. BusSchDean says:

    Oops…meant to post to morning readings…sorry about that.

  12. 873450 says:

    The Grand American Socialist Experiment

    Americans are entitled to birth at conception.

    Americans are entitled to a public education.

    Americans are exempt from military service, particularly during wartime.

    American soldiers are entitled to exemption from federal taxation while serving in a battle zone. Upon discharge they are entitled to a tuition subsidy, vocational training and a hiring preference. If wounded, they are entitled to Veterans Administration healthcare, rehab and, when necessary, living expenses for life. If killed in action, their families are entitled to survivor benefits. Upon death they are entitled to a simple coffin, burial grave and headstone

    Retired Americans are entitled to Social Security and Medicare. Some get Medicaid too.

    Americans living in poverty are entitled to welfare, food stamps, Medicaid, subsidized housing, job training, childcare, … lots and lots and lots of free stuff.

    Americans get pissed off learning Wall Street is entitled to more than one Nanny.
    Because they hate successful people doing God’s work?

  13. Greg0658 says:

    873450 a poke deserves a peek
    1st – Americans are entitled to birth after 20 weeks of womb growth (presently)
    2nd – retired Americans are entitled to SSI and beyond – if they or spouse worked in the OpSys
    3rd – people living in America in poverty are granted the grand experiment
    (but see a social worker or lawyer)
    4th – 1 nanny? most else is correct – ie: the grand experiment of more music less game

    these debates from seeming capitalists – you capitalist do realize that every living kept piece of livestock is money in the bank to 1 or more of us – the question we must ask is who pays* at the bottom line

    and ..
    this post is a great place to ask again (sorta) – Q: is a retirement that is earned and washed out by the OpSys – a positive to the economy ? or is it a loss ? .. imo it is a loss – to the desired intention of it’s creation in the 1st place – ie: work* for country & put aside to RIP (retire in peace)

  14. louis says:

    I’ll vote for the person who steps up to plate and ends this bullshit. Don’t care what you believe, anyone, anyone?