Countrywide

And then there were four.

• RICK PERRY MAY DROP OUT OF PRESIDENTIAL RACE TODAY, CNN SAYS

It appears even Bank of America (which had a hilarious and brilliant $600 million Goodwill impairment today - on what? The fantastically prfoitable Countrywide acquisition) could not "help him out."

Of course, everyone is now expecting tonight's impromptu ABC "Career ending" interview with Mrs. ex-Gingrich, which may make it a trio. That may happen even despite Perry's imminent enrosement.

• Here we go again: IMF Said to Seek $1 Trillion Resource-Boost Amid Euro Crisis (Bloomberg)
• China said to Tell banks to Restrict Lending as Local Officials Seek Funds (Bloomberg)
• EU to Take Legal Action Against Hungary (FT)
• Portugal Yields Fall in Auction of Short-Term Debt (Reuters)
• US Natural Gas Prices at 10-Year Low as Warm Weather Weakens Demand (Reuters)
• German Yield Falls in Auction of 2-Year Bonds (Reuters)
• World Bank Slashes Global GDP Forecasts, Outlook Grim (Reuters)
• Why the Super-Marios Need Help (Martin Wolf) (FT)
• Chinese Vice Premier Stresses Government Role in Improving People's Livelihoods (Xinhua)

Just out from Reuters:

• NIGERIA'S LABOUR UNION LEADERS SAY STRIKE SUSPENDED - RTRS

Minor down tick in crude on the news, maybe because everyone is still sleeping. So, does this mean that the Iran embargo is back on, and the joint US-Israel wargames are set to resume as "budgetary" conditions have loosened?

The catalyst so many have been waiting for, and the nearly 30 million shorts dreading, has arrived. From Judge Eileen Bransten: "ORDERED that MBIA Insurance Corporation’s motion for partial summary judgment is granted to the extent that MBIA Insurance Corporation (“MBIA”) must establish for its claim of fraud that misrepresentations by the defendant(s) induced MBIA to issue insurance policies on terms to which it otherwise would not have agreed and that MBIA is not required to establish a direct causal link between defendant(s) misrepresentations and MBIA’s claims payments made pursuant to the insurance policies at issue; and it is further ordered that MBIA's motion for partial summary judgment is granted to the extent that MBIA must establish for its claim for breach of the Insurance Agreement against Countrywide Home Loans that CHL's breach of warranties in the issued insurance policies' transaction documents increased the risk profile of the issued insurance policies and MBIA is not required to establish a direct causal connection between proven warranty breaches by CHL and MBIA's claims payments made pursuant to the insurance policies at issue, and it is further Ordered that MBIA's motion for partial summary judgment is granted to the extent that MBIA may seek rescissory damages upon proving all elements of its claims for fraud and breach of representation and/or warranty." In short, this is core catalyst that Manal Mehta expected and which BTIG envisioned to justify its $22.50 price target. It is also the judgment that will make Bank of America's case law life a living nightmare going forward (naturally following repeated failed attempts at appealing). Lastly, any and all shorts in the name may have their work cut out for them.

As we head into the artificial investing horizon of year-end, sell-side research is compelled to offer its best-guess at what will be key for the year ahead. We certainly head into 2012 with considerable potential downside risks - US recession?, breakup of the Euro?, hard-landing in China? - and BofA Merrill Lynch's RIC Report bears these in mind as it suggests investors position for these ten key macro themes (some positive, some negative) from slower global growth to a weakening US consumer and QE in US and Europe. Starting from a neutral equities, long gold, long US corporate bonds, they favor growth, quality, and yield in one of the more complete summaries of expectations we have read.

Warning! Highly controversial post. Long. Thick (with information) & HARD [hitting]! Thus if you are easily offended by pretty women, intellectually aggressive brothers in cognitive war garb, government regulators selling you out to the highest European bidder, or cold hard facts borne from world class research not seen in the sell side or the mainstream media, I strongly suggest you stop reading here and move on. There is nothing further for you to see.

We hardly needed confirmation that a) Bank of America is a den of criminals and thieves, that b) its toxic $1.3 trillion mortgage division, better known as Countrywide, is an even scarier and more putrid den of criminals and thieves, and that c) it retaliates against anyone who dares to remind the bank that there are such things as laws, and the aforementioned criminals and thieves actually have to follow these. Yet this is precisely what we just got after the Department of Labor said that it must pay $930,000 to an employee who led internal probes of abuses at its Countrywide Financial unit and was fired in violation of whistleblower protections.  Bloomberg reports "the employee, who also must be reinstated, had claimed that people who tried to report fraud to Countrywide’s employee- relations department suffered persistent retaliation, the agency said today in a statement. He was fired after Charlotte, North Carolina-based Bank of America’s 2008 purchase of Countrywide, according to the statement." So is it possible that the general public can now get the documentation that said whistleblower was fired for attempting to bring to his retaliating superiors' attention? And just how damaging will this development be to a bank which is already embroiled in litigation with virtually every single entity that has every transacted in mortgages both in America, and now abroad?

Ten days ago Zero Hedge presented the idea of applying an Asbestos-type settlement to the neverending lawsuits against Bank of America which if continue at the current rate will result in the swift and brutal end of the massively undercapitalized bank by a thousand Rep and Warranty litigation cuts. Yesterday, we were happy to see that the idea has received far broader billing, and is being taken up by non other than Reuters: "When some look at all of the litigation arising from Bank of America's big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago. The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of "asbestos settlement trusts," which have paid out tens of billions dollars in damages. Some of them are still going strong today. The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits." In other words, the choices for Bank of America are now two: either it prepares for a slow, painful, insolvency as all of its cash is bled out in litigation fees and "one-time" lawsuit charges, or, almost just as bad, it funds a massive trust, ringfencing all past, current, and future claims, and which is funded...by nearly all of Bank of America's equity. Yes, the end result will be a near wipe out of the existing Bank of America stock, but it will not be bankruptcy! In essence, what BAC will do is a bankruptcy remote "prepackaged bankruptcy" in which it spins off its contingent liabilities, with an equity buffer of whatever the litigants choose (most likely up to about 95% of the firm's current equity value), and proceeds to grow as a simple bank (with or without Merrill) and fund itself through retained earnings, in the process shedding off the "cancer" that are $1.2 trillion in toxic mortgages. The result of this would be a BAC share price of under $1 but that is inevitable. The alternative: freefall chapter 11 and technically 7 (which will never be allowed by the administration, sorry Chris Whalen), means BAC trades to $0.00, and the status quo system of crony communism is finished.

There were those who were fuming about what a great deal Bank of America got in acquiring Countrywide. Ironically, that same deal threatens to bite the banks in the ass and cost it tens of billions in litigation as more and more realize that the bank's mortgage-related practices (both before the CFC acquisition and after) have been based on a foundation of fraud. While Zero Hedge has not discussed the issue at length recently due to the expected temporary pushback by various legislatures, which would make an outright risk assessment against BofA impossible since there is far more politics than finance involved, it seems that with each passing day things are getting closer to spiralling out of control for America's largest lender. The latest news, just out from Bloomberg, indicating that the bank may be advised to urgently increase its litigation and putback reserve, is that Utah's AG Mark Shurtleff advised Brian Moynhian that the bank's foreclosures in Utah are illegal. "A Bank of America Corp. unit conducting home foreclosures in Utah is violating the law, the attorney general said in a letter as individual states advanced their investigations of mortgage servicing. “All real estate foreclosures conducted by ReconTrust in the state of Utah are not in compliance with Utah’s statutes, and are hence illegal,” Shurtleff wrote." Oops. There goes another several billion in litigation fees because that beeping noise is thousands of foreclosed upon mortgageholders calling the first attorney they can find in the yellow pages in hopes (soon to be fulfilled) of unwinding completed foreclosures. This action joins comparable pushes from Connecticut, Illinois and California, and pretty soon BofA will be unable to foreclose upon any home in the domestic US. We estimate that the legal cost associated with foreclosure delays will cost the bank well over a billion when all is said and done. And just to make life truly miserable for BofA, Elijah Cumming sent a letter to the Committee on Oversight and Government Reform advising he is considering a broad subpoena to all mortgage servicers, chief among them, you guessed it: Bank of America.

A few days ago, news broke that MBIA was allowed to use statistical sampling in its ongoing Bank of America fraud lawsuit. This happened despite the Countrywide acquiror's loud protests. And now, courtesy of today's brand new lawsuit against BofA (and Agent Orange himself) filed by Allstate, in which the insurer "seeks unspecified damages, alleges fraud, negligent misrepresentation and violation of U.S. securities laws" we know just why Bank of America was so very against allowing sampling to be used by plaintiffs. According to the full report (pdf attached below), Allstate has determined that Bank of America misrepresented virtually everything in its prospectuses: from the percentage of owner-occupied properties reped in prospectuses (about a 10% differential), to the LTV thresholds on represented loans (both at the 90% and 100% threshold), while inbetween finding willful and malicious intent to defraud and deceive. We are confident that none of this, however, will result in a prison sentence for Mozillo, as laws in America are meant to be broken by anyone who can demonstrate an LTV more than 100,000% or have more than $100MM in annual income (including that derived from golden parachutes).

Two weeks ago, the New York Times's Gretchen Morgensen wrote an article in which she touched upon the curious case of Kemp vs. Countrywide Home Loans in which Countrywide held on to the original mortgage note and related docs "even though the pooling and servicing agreement
governing the mortgage pool that supposedly held the note required that
it be delivered to the trustee, the court document shows" thereby impairing the integrity and validity of all downstream securities. Prior to this (and since) we have seen many more cases in which there was outright court fraud in some capacity, either w/r/t the PSA or the already well known issue of robosigning. It is no surprise that after making a splash, this topic has disappeared from the mainstream media, as banks are doing all they can to "silence" the debate, whose implications could be terminal for the US leveraged housing paradigm, which has existed since the advent of the GSEs. Yet, surprisingly, in today's Weekly Credit Outlook, Moody's brings new attention to this particular case, and adds some language that if one were the CEO of Bank of America, one would be very, very nervous, more so than even how damaging the revelations from the Wikileaks disclosure on BofA may end up being. To wit: "We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS." Did Moody's (always horrendous at timing its entrance and exit) just pee in the proverbial RMBS pool?

“A thief who steals a check payable to bearer becomes the holder of the check… but does not become the owner of it.” 4closureFraud.org

A year ago, Associated Press reporter Larry Margasak got caught
in a lie. He manufactured a false lede by concealing critical
information:

Despite their denials, influential Democratic Sens. Kent
Conrad and Chris Dodd were told from the start they were getting VIP
mortgage discounts from one of the nation's largest lenders, the
official who handled their loans has told Congress in secret testimony.

The witness also recanted his statement. When asked a second time
if he told Dodd that he was getting special treatment, he said, "I don't
remember... but, you know, it was conveyed in some way, shape or form."
No honest journalist would report that Dodd was "told from the start,"
about a mortgage discount.

Bank of America is really unable to catch a break. The latest kick in the groin comes courtesy of the Chairman of the House Oversight Committee Edolphus Towns, who has announced he will launch a subpoena into whether Countrywide gave "favored terms to lawmakers and other VIPs." Concurrently, a panel is evaluating predatory lending practices at a variety of different banks. Some of the firms that will be told to provide information include Wells Fargo, JP Morgan, Citigroup, US Bank and GMAC.

2006? Ancient history dude.