Bank of America Proposes To Cut Outstanding Mortgages In Exchange For Broad Legal Settlement Deal

As had been rumored over the past few weeks, the WSJ reports that Bank of America is actively pursuing a deal in which it would get "broad release" from legal claims against the lender (which if provisioned properly and in their full amount will destroy the bank) in exchange for cutting the amounts owed by borrowers. The bank is "discussing the proposal with state and federal officials who are prodding the country's biggest banks toward a multibillion-dollar deal to atone for foreclosure errors…As the discussions dragged on past the mid-June target set by U.S. officials, Bank of America began pressing officials for a speedy resolution, and it put forward its principal reduction proposal in one-on-one talks with state and federal officials. Meanwhile, negotiations continue with the banks as a group…Bank of America has told officials it wants protection against future litigation relating to mortgage servicing, said people familiar with the situation. In exchange it is willing to agree to a program in which troubled borrowers would have to prove financial distress to qualify for a writedown of the principal owed on their mortgage…The principal amount would have to be $1 million or less in certain geographic areas, one of these people said, and a reduction would apply to the bank's own mortgages and those its services for private investors…The more modifications the bank agrees to, the less it will pay in cash as part of an eventual settlement, one of these people said." So in summary, in order to protect itself from being destroyed in the courts, Bank of America is happy to spread the Bernanke Put love on all of its deadbeat clients, in the process further exacerbating the class warfare that is emerging to be the most successful legacy of the Obama administration.

And in other completely irrelevant news, the MBA reported a 7.8% jump in its refi index. This utterly worthless weekly series , tends to fluctuate by up or down 10% each week, but most importantly is down 30% compared to a year earlier as virtually nobody pursues refinancings even in this environment of record low interest rates. As Bloomberg analysts Chris Maloney says, "Refi data continues to be supportive of MBS, shows homeowners, especially those whose mortgages were packaged into cuspy coupons, are either unwilling or unable to refi. He adds: "Stubborn unemployment rate, falling home prices, “shadow” inventory, underwater homeowners among headwinds that may hold refis below last year’s levels through summer."

And why should anyone refi if i) nobody is paying their mortgage and ii) everyone knows their lender bank will soon follow in BAC's footsteps and cur their principal outright on the existing mortgage? Why indeed.

h/t Manal


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