The Federal Reserve Bank of New York (the Fed) is pushing Bank of America (BofA) to buy back a portion of the mortgages they packaged or acquired and then sold to mortgage-backed bond (MBBs) pools, claiming the mortgages were misrepresented at the time they were sold. Several other MBB investment companies, including Pimco and Blackrock, have followed suit and joined the list of those scorned by BofA’s allegedly questionable underwriting and paperwork.
The bank estimates a total of $12.9 billion in buy-back claims as of September 30, 2010.
first tuesday take: This is merely a report of the ongoing chaos surrounding BofA, whose days are numbered to the time government agencies require mark-to-market accounting for assets which support deposits. Also, the business of buying back non-performing mortgages sold to MBBs is nothing new, and BofA has yet to set aside the mega-billions of dollars they will need in reserve for steadily increasing losses on assets (delinquent mortgages) — funds not available to otherwise be invested in new mortgages, but rather to buy back old defective loans at face value.
The MBB investors want all the bad loans repurchased quickly by BofA before the government steps in to end the repurchasing since on a seizure, the government will eventually have to pay for repurchases already made.
The Fed, during 2009 and the first quarter of 2010, acted as the nation’s lender of last resort by buying MBBs so mortgage money remained available at cheap rates and banks could make and sell new (and government-guaranteed) loans. Now the Fed is acting to hold those banks accountable for the misrepresented transactions underwritten by bank robo-signers during boom times. [For more information regarding Federal Reserve regulation, see the October 2010 first tuesday article, The Fed purchases Treasuries, fends off deflation.]
The moral of the story? Deregulation of money always goes up in flames.
Re: “Fed wants banks to buy back some bad mortgages” from the New York Times