BofA Scrambling To Dump $1 Billion In Mortgage Paper

Tyler Durden's picture

A report by the Post today discloses that Bank of America, haunted by ongoing pressure in both the robosigning/fraudclosure scandals, and demands by the likes of Pimco and the New York Fed to putback billions of paper to the bank due to misrepresentations, is rapidly trying to dump $1 billion worth of toxic paper. One can only assume that this is merely another tactic by the bank to further confuse forensic tracking of who owns what in the multi-trillion whole loan/RMBS space, in which it has recently been discovered that few actually know and track who is the end owner (as opposed to servicer) of a large amount of mortgage paper. This follows comparable actions by Wells Fargo which recently announced it was spinning off its mortgage business as a separate division, as well as Goldman's announcement it was seeking to distance itself from its Litton Loan mortgage unit. It appears the Plan B in case a broad settlement with the Attorneys General is not reached is to simply offload as much responsibility to someone else before the hammer finally falls. Then again for BofA this may be far too little too late: "As of Sept. 30, BofA owned more than $12 trillion in mortgage-servicing rights, down from $19 trillion last year. The bank owns and services mortgage assets totaling $2.1 trillion."

More from the Post:

The sale of the block of mortgage assets, which includes loans and mortage-servicing rights, seems to signal that Chief Executive Brian Moynihan, who has said he will battle to clean up the mess, thinks the best way out is through a sale.

"This is a big sale," one person familiar with the situation said yesterday.

The asset sale is part of a larger effort by the bank to unwind a trove of assets in the wake of the blockbuster purchases of Countrywide Financial and Merrill Lynch.

The troubled loans have already been written off, so the sale isn't expected to hammer shares, which are down 15 percent year to date.

BofA also wants to improve its public image by not being in the news for foreclosing on homeowners.

"The sale is very small relative to the overall size -- but it is probably the troubled stuff that is the most expensive to service and this is what the hedge fund guys would want to buy," said Paul Miller, bank analyst at FBR Capital Markets.

As the end buyer(s) will likely be distressed hedge funds, and as various performing loans will likely be bundled as part of the transaction, this adds another layer of complexity when the attempt to resolve who owns what finally surfaces. One thing to keep an eye out for is whether these are whole loans or RMBS, because if securitized portfolio are now being unwound in whole or piecemeal it lends more credibility to the theory that due to process irregularities during the robosigning phase of fraudclosure, and associated errors in Pooling and Servicing Agreements, then much more of the RMBS market may be impaired than previously anticipated.