Bank of America

And so the latest shoe to drop in robosigning falls. Diana Olick reports that BofA has stopped its issuing notices of default in non-judicial states, such as the all critical California and Arizona, which explains the dramatic drop off in NODs in January. Previously explained by Koolaid guzzlers as an indication of economic improvement, it turns out this was merely yet more fraud being perpetrated by the big banks, which are now trying to cover up their slime trail. According to Bank of America's Dan Frahm, "We did conduct a review of the Notice of Default process. As a result we stopped the NOD process in non-judicial states." And so the double dip just got far worse.

The benchmark for documented mortgage originators' lies is getting higher and higher. First it was the Allstate lawsuit, finding massive fraud in most Countrywide/Bank of America loans, then it was quantified at 70% after Wells Fargo sued JPM's EMC division, now it is all the way up to 91% after a just released lawsuit by the bulk of the world's biggest insurance companies has been made public, in a fresh lawsuit again Bank of America/Countrywide over "Massive mortgage fraud." 

Three months ago, in light of the then released news that various parties among which the New York Fed and PIMCO are seeking to putback $47 billion worth of mortgages to Bank of America, we looked at the bank's reserve for reps and warranties and came to the conclusion that it was woefully underreserved (see: Can You Spell U-N-D-E-R-R-E-S-E-R-V-E-D? If Not, Here Is A Visualization Aid). Today, to our complete lack of surprise, we find that the Bank's reserve for such demands has exploded nearly five fold to a number that is probably the highest in history, at $4,140 million compared to a tiny $872 million in Q3, primarily driven by the settlement by Fannie and its sell out General Counsel Tim Maoypoulos. This is also the main reason for the bank's huge "charge" today which caused Earnings to be well below expectations. That said, that particular settlement is just the beginning of the firm's putback woes. Of course, what the bank is doing here is pretending this is a one time charge and hoping investors will give it credit for the Q3 number being the trendline, as opposed to the Q4, when it is precisely the reverse. Furthermore, we predict that soon enough declining reserves in all other categories will soon be reversed much higher as the sad reality of the US consumer, who has already extracted all benefits from not paying a mortgage, will become very evident and bank charge off ratios will be the first to suffer.

Going through Bank of America's apples to monkeys numbers, and awaiting the Q4 presentation eagerly, but for now BAC missed both the top and the bottom line by a mile: the company reported sales of $22.67B, vs. consensus $24.87B with EPS of $0.04 on expectations of $0.21.

Two months ago, there were a variety of campaigns launched to get the mass public to demand from their bank an original, wet ink signature note for their mortgage. Many of these fizzled out. That said, we would like to present one instance of Bank of America responding negatively to just such a demand by a Zero Hedge reader, in which the bank's Home Loans unit outright refuses to provide the requested information hiding behind a lack of affirmative responsibility. Specifically, the response from the Qualified Written Request Group notes: "you cite no legal authority that supports your claim that you are entitled to view the original Note, and we are not aware of the existence of any such authority. Accordingly BAC Home Loans respectfully declines this request. If you wish to pursue this matter further, please provide such legal authority." In other words, banks continue to hide behind a legal defense that ultimately involves the jurisdiction of various (if not all) state attorneys general. In the meantime, odds are (99%) that the bank has absolutely no copy of the original and should the reader proceed to default (in a judicial state), the bank will likely ultimately be forced to give up its claim on the mortgage. And one wonders why the TBTF banks (especially BofA, Wells and JPM) are doing all they can to promptly bring the AGs under their fold (regardless of "cost") before all hell breaks loose should the required "legal authority" be provided through case law.

While we frequently make fun at Maxine Waters, and often for good reason, in this case the Congressional Democrat is spot on: the member of the House Financial Services Committee has denounced the BofA-GSE settlement as nothing more than a "backdoor bailout" funded by taxpayers, precisely as disclosed yesterday in the exhaustive Forbes piece that is a must read.

While everyone has been focusing on American institutions over the past several months looking for entities that may have claims on Bank of America and other domestic banks which have misrepresented their mortgage portfolios, a question that nobody is asking is why are European, and specifically German banks, not joining the fray? After all, when it came to finding idiot investors, Goldman et al's rolodex would always immediately jump to those in the Ruhr and Rhine valleys. And sure enough, as many German (Landes)banks ended up on the receiving end of Wall Street innovation, and thus bankrupt, it has been shocking that very little initiative has been demonstrated by German investors who lost most or all of their capital when subject banks ended up purchasing misrepresented securities. All this may be changing soon (see below). But even if it isn't, a key question is just what leverage does America have over Germany to prevent the country from pursuing rightful putback demands against the mortgage banks. Our guess: those lovely FX lines from Benny and the Inkjets. After all recall that the Swiss tax disclosure was the quid pro quo in exchange for the unlimited Fed credit facility to the SNB when the country was on the verge, and when UBS needed a bad bank to make sure the Swiss giant survived.

When we first heard news about the partial settlement between Fannie and Bank of America, we assumed, naturally, that the current Fannie General Counsel Tim Mayopoulos, and former spurned Bank of America General Counsel, would have been front and center in such discussions. After all he is the damn general counsel, who just happens to know all the dirt there is about Bank of America. We also assumed that any non-disparagement, and/or related trade secrets clauses would be obviously very much irrelevant. We were wrong. It appears that the man who more than anyone should have been able to put two and two together and actually derive some benefits to his bosses, the American taxpayers, and generate a better settlement.... decided to recuse himself from the negotiations! We wonder then just on what grounds this man, who it seems Ken Lewis may very well have had a justifiable reason for getting rid of, was awarded $3 million in compensation for doing nothing to protect taxpayer interests in America's most (openly) insolvent company.

So far, Bank of America has been aggressively denying it will in any way be compromised by any possible Wikileaks disclosure. After all the bank claims it has done nothing to merit a take down based on what Assange has claimed is an "ecosystem of corruption." As everyone knows, Bank of America is the most non-MERS abusing, bonus non-extracting, putback over-reserved, and otherwise law abiding bank in existence. Which is why we are just modestly troubled by the fact that this innocent not until proven guilty but in perpetuity bank is doing all it can to demonstrate that there is in fact a very disturbing ecosystem just below the surface. The NYT reports that "a team of 15 to 20 top Bank of America officials, led by
the chief risk officer, Bruce R. Thompson, has been overseeing a broad
internal investigation — scouring thousands of documents in the event
that they become public, reviewing every case where a computer has gone
missing and hunting for any sign that its systems might have been
compromised." What goes unsaid is that BofA is really looking for what the disclosed dirty laundry is. Which really makes no sense: after all, for that to be the case, there would have to be dirty laundry in the first place, which would mean Bank of America is lying. How does one go about reconciling these two mindbogglingly contradictory facts...

Just headlines for now. We are confident this firm-solicited action to eliminated BAC's counterparty credit rating is purely in the interest of shareholders and taxpayers, or both as the two tend to be equivalent, and purely for the benefit of transparency and openness. It most certainly has nothing to do with recent allegations that the bank has been fraudulently misrepresenting hundreds of billions of mortgages it sold to third parties.

But will the documents just show shenanigans (bolstering the case that WikiLeaks is psyops or political theater) or criminal wrongdoing?

While Goldman Sachs' Jim O'Neill continues to push his theory for decoupling based on an extended developing world, which includes such countries as Nigeria and Iran, to drive global growth as per his recently launched BRIC replacement, the N-11, Bank of America's economics Ethan Harris and Neil Dutta, have taken a far more novel approach to finding "hidden" sources of pent up growth potential: women. Of course, neither dares to admit that the only real source of 'growth' is nothing less than previously unprecedented amounts of monetary stimulus in the form of endless free central bank liquidity. But in every bank's quest to find the missing link in the "virtuous circle" dynamo, we expect increasingly more ridiculous assumptions about what will manage to be a standalone driver for a 4%+ GDP growth for the US. In the meantime, the fact that the underlying "organic" economy, not to mention the stock market, would flounder absent trillions in cheap money supporting all asset prices continues to be resolutely ignored by everyone. Which merely confirms that the Fed will likely never hike rates again, as that would eliminate two years of what will soon amount to nearly $4 trillion in monetary stimulus in the US alone, which in turn represents roughly 25% of the stock market capitalization in the US alone. But going back to why Bank of America is now going long women, here is Harris' summary: "The wounds of the economic crisis will take years to heal. However, we expect female earnings to recover faster than male earnings. In many households, women already do most of the shopping. So, while we remain cautious on the trajectory for consumption, our sense is that women will increasingly drive consumer spending." At least BofA will have someone to blame it all on, when their latest ridiculous "economic" theory collapses in a pile of dust.

In August 2009 the "Deadbeats" paid the loan IN FULL. But... BAC claimed to have received rights in the loan from Taylor Bean & Whitaker as of Sept 1, 2009. Notwithstanding that the loan was FULLY PAID, BAC attempted repeatedly to collect on the PAID OFF loan.

With everyone focused on whether or not the Build America Bond program will be extended (it appears it won't, and is the main reason for the market weakness today), after rumors earlier that the program may not be part of the negotiated extension (and why not? It's not like republicans are suddenly pretending to be fiscally prudent, after pushing the latest addition to the welfare state that will cost $5 trillion in future debt) we now learn that pathological nest of infinite criminality better known as Bank of America has again settled a new SEC fraud charge, this time relating to its municipal securities program. According to Reuters headlines, the SEC has sued Bank of America Securities with fraud in connection with allegations of improper bidding practices involving municipal securities. But heaven forbid the SEC would settle on anything more than a, well, settlement: just as the charge was announced, so was the settlement, and we learn that BofA has agreed to pay more than $36MM in disgorgement, and that is and affiliates to pay another $101MM to Federal and state authorities. SEC wristslap... and the bank can go bank to stealing.

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?