Bank of America Is Next on the FHFA Hit List

Dusting off its hands after the recent bout with JPMorgan Chase (NYSE: JPM  ) , the Federal Housing Finance Agency is now turning its attention to Bank of America (NYSE: BAC  ) and its own sales of crummy mortgage-backed securities gone bust. Having secured $4 billion from the former bank, the chances of Bank of America getting away with anything less seem pretty dim.

Settlements are on the rise
The FHFA, as conservator for government-sponsored entities Fannie Mae and Freddie Mac, is currently looking for a $6 billion settlement from Bank of America, the same amount it originally sought from JPMorgan Chase during negotiations on toxic MBSes the agency said the bank sold to the GSEs between 2005 and 2008. The $4 billion has been folded into the larger $13 billion settlement between JPMorgan Chase and the Justice Department.

FHFA charges against 17 big banks have been pending for two years, and several have settled up, including Citigroup, General Electric, and, more recently, UBS AG  (NYSE: UBS  ) . While the first two did not disclose settlement numbers, UBS paid $885 million this past July to put paid to allegations that it snookered the GSEs into purchasing rotting mortgage bonds from 2004 to 2007.

Bank of America, JPMorgan Chase, UBS, and other banks had fought mightily to have the FHFA lawsuit nixed, but they ultimately failed. UBS's settlement closely followed a decision handed down by the 2nd U.S. Circuit Court of Appeals in New York, in which the court ruled against the banks' petition to reverse rulings issued by Manhattan U.S. District Judge Denise Cote, alleging that she had deprived the banks of information necessary for them to fight the FHFA's allegations.

Can Bank of America afford another settlement?
Considering the rash of settlements so far, it looks like Bank of America will settle up with the FHFA, too. In the bank's third-quarter conference call, CEO Brian Moynihan made reference to the FHFA suit, but noted that there was no news to report upon as far as that issue was concerned.

In a discussion with CLSA analyst Mike Mayo, Moynihan noted that the bank's $14.1 billion in reserves included $8.5 billion for a previously settled case currently being rehashed in Manhattan. In that case, which involved 22 institutional investors claiming foul on 530 MBSes sold by Countrywide, the payout could change if the proceedings can show that the deal was negotiated in bad faith back in 2011.

That leaves about $5.5 billion in the reserve fund, as Moynihan inferred, for everything else. Moynihan wouldn't get into what would happen if the aforementioned settlement was vacated, noting only that they would look at that problem when and if it arose. Mayo has maintained that Bank of America still has a substantial battle ahead to put all of its legal problems to rest -- and today's announcement certainly seems to corroborate that opinion.

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  • Report this Comment On October 21, 2013, at 1:00 PM, prginww wrote:

    And 95% of the toxic loans came from countrywide AKA Quicken loans.. The CEO of Quicken loans former CEO of countrywide is buying up Downtown Detroit and buying the election for Duggan's with the money he got from BoA

  • Report this Comment On October 21, 2013, at 1:15 PM, mr091468 wrote:

    Isn't this the same sorry axxed out of control federal government that FORCED these banks to make loans to the worthless dummies who could never pay the monthly payments? Isn't this the same sorry axxed democrats who INSISTED these banks take such unworthy income items such as welfare pmts, food stamp "income", etc etc etc. into account to qualify these people for loans? Personally, I think the big banks and this out of control federal government are in this fraud together.

  • Report this Comment On October 21, 2013, at 1:22 PM, nofoolingforme wrote:

    This penchant to punish the banks is the main reason the economy is having problems pulling out of the recession "overhang". Let's get it over with and move on!

  • Report this Comment On October 21, 2013, at 1:30 PM, JohnMaxfield37 wrote:

    <<And 95% of the toxic loans came from countrywide AKA Quicken loans.. The CEO of Quicken loans former CEO of countrywide is buying up Downtown Detroit and buying the election for Duggan's with the money he got from BoA.>>

    I'm not sure where you're getting your facts, conradtbroder, but I'd encourage you to find a different source. Quicken's founder and CEO Dan Gilbert never worked for Countrywide.

    I think the person you're referring to is Angelo Mozilo, the founder and former-CEO of Countrywide -- who, for the record, does leave a lot to be desired, but doesn't have anything to do with Quicken.

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