Bank of America Loses Key Battle In Mortgage Fraud Fight

CNBC ^ | 12/23/2010 | John Carney

[FromLori]

A New York court ruled yesterday that a bond insurer claiming Bank of America’s Countrywide unit fraudulently induced it to insure $21 billion of mortgage-backed securities can use statistical sampling to prove its case.

Judge Eileen Bransten granted a motion to allow the insurer, MBIA, to use statistical sampling, turning down the objections by Bank of America.

Bank of America [BAC 13.06 -0.32 (-2.39%) ] had told investors that it intended to fight repurchase requests—also known as put-backs—on a “loan-by-loan basis.” That process would have required MBIA and others seeking to force Bank of America to buy back loans it pooled into mortgage securities to proceed one loan at a time, a costly and time-consuming process.

[FromLori]

Related story snippet..

“MBIA paid $2.2 billion in guarantees on the disputed securities and may have to pay “hundreds of millions of dollars more” to reimburse investors who were to receive money from mortgages that went into default, according to court documents.

MBIA said its reviews found that 91 percent of defaulted or delinquent loans had “material discrepancies from underwriting guidelines,” such as borrower incomes, credit scores or debt- to-income ratios. The 15 securities pools in the lawsuit consist of 368,000 home-equity lines of credit and second-lien loans that were insured and sold to investors from 2004 to 2007.”

in full http://www.bloomberg.com/news/2010-12-22/bofa-loses-evidence-ruling-in-mbia-fraud-suit-over-21-billion-in-coverage.html?cmpid=yhoo

[Squidster]

I am familiar with this case. As much as you may hate BofA/Countrywide, MBIA and other insurers may stupid bets, lost, and now want BofA to pay.

[allmost]

This is going to be a mess. People who crossed their t’s and dotted their i’s will be hit hard as well unfortunately. Double the work, unpaid, to go back and run the loop. Never liked BoA. Not one bit since the late 90’s.

[allmost]

Are you a Bank of America employee?

[Chunga85]

This is going to be a mess.

The insurers have access to the Prospectuses and Pooling and Servicing Agreements. Homeowners do not.

Funny how things work sometimes..

[FromLori]

I don’t like them either mainly because of how they donated so heavily to obama and the libs.

I think the people who did the loans correctly shouldn’t have a problem it’s those who did those Liar loans and sold them to investors everywhere that may have put backs.

Can you just imagine if those banks were forced to do put backs for all the garbage loans they sold to Fannie/Freddie?

That’s what I would like to see as a taxpayer but then again the people who have 401’ks/pension plans invested in MBS’s that were sold these toxic loans and told they had Triple A ratings and have lost money as a result it would be a plus for them to have put backs as well.

[allmost]

The insurer got scammed. I see this from a more ground level perspective. Specifically regarding the valuations of foreclosed properties. Notice the timing where some of the paid off congressional dems (lame duck) are out of power as of this ruling. I would like to see this continue.

[allmost]

The people that did their jobs right the first time are being forced to do them, for free, all over again. The main defense of BoA seems to be too much data. I hope this billion dollar insurer can survive to put these individuals running BoA in check.

[steveab]

“The terms of the pooling and servicing agreements that govern almost all private label mortgage-backed securities require the proper assignment of the mortgage notes to a trustee. If the trustee wasn’t assigned the mortgage note, the purchasers of the bonds may be able to claim that the mortgages were ineligible to be in the securitization pool and force banks to buy them bank. If enough of the mortgages are flawed, purchasers may have the right to put back the entirety of the bond to the bank that securitized it.”

So, B of A bought Countrywide which put together MBS based on AAA rating and sold them to investors. The investor want the their money. The Insurance sold the policy based on the rating of the MBS which was based on Countrywide doing their due diligence found out the MBS were not worth paper they are printed on. Or,the mortgage-backed securities turn out to be not back by anything.

Someone from Countrywide needs to go to jail. After all Madoff is in jail.

[CdMGuy]

So, MBIA had no responsibility to do due diligence? I am no lover of BofA. In fact, I do not like them. Just the same, the people at MBIA were not morons. Did they not take a look at the pools of mortgages they were getting involved with? Sure they did, and they wanted to get on the gravy train. Now, they are looking for a scapegoat. I say, “Caveat Emptor.”

[NativeNewYorker]

You mean the insurer *knew* the loans sucked, but insured the deal anyway?

[allmost]

They were insurers. Not to be explicitly confrontational but that reasoning could apply to all insurance fraud.

[ModelBreaker]

“Can you just imagine if those banks were forced to do put backs for all the garbage loans they sold to Fannie/Freddie?”

It’s not quite that simple. Fannie/Freddie (F/F) set out guidelines for the requirements for loans F/F would buy from the banks. This was a public policy sort of decision being made by politicians (Franklin Raines, Jaime Gorelick et al) for political ends (home ownership by those who could not afford it). Banks or third party lenders would make loans as long as the boxes were checked and those boxes complied with F/F guidelines. The banks were a political tool and a money box for liberals for decades.

The so-called “garbage loans” were designed by F/F, the “garbage” guidelines were published by F/F in advance, and F/F then did what it said—it bought the garbage.

Overwhelmingly, those loans went bad because the FF guidelines were stupid. There never should have been neg-am loans or zero down-payment loans on no income verification. But there were.

Obviously, someone’s going to take big losses. It’s hyenas fighting over rotten carrion. But as between the two, F/F is far more to blame than the banks. All the finger pointing at the banks is a way to deflect blame from where it belongs—the United States government and the people who control it.

On that note, did you know that, since F/F is no longer buying zero down-payment loans, the FHA has taken over that role? There has been no change in policy. The new losses are just being accumulated in a different agency.

Keeping this straight is important for conservatives. You don’t have to love, or even like, banks. But we should keep the finger pointed straight at the body who created this incredible mess we are in—the US government, primarily congress and administrative agencies. It’s the only way to make the argument for smaller government and against the enormous expansion of government that will be urged when the next leg of the bubble bursts.

[Squidster]

Nope. I don’t work for any commercial bank or subsidiary.

Many of the loans were insured 1) after the housing market started to fall off of a cliff and 2) subprime delinquency rates had started to seriously escalate. Also, many of the loans in question were in the sand states of AZ, NV, FL and CA (Inland Empire).

So, did the loans “suck,” no. At least not all of them.

Look at page 4 of this report:

http://www.fanniemae.com/ir/pdf/sec/2010/q2credit_summary.pdf;jsessionid=FPWNYRAFCNFYRJ2FQSHSFGQ

Suppose BofA, Wells, etc make 10% down loans in 2005-2007. AZ lost 45% peak to current. Plus, unemployment rose.

Now, we all claim we saw it coming in AZ, NV, CA and FL. But apparently MBIA didn’t.

Bear in mind that a bunch of class action suits will fold BofA, Wells and the others. Who will pay for it? US. Zimbabwe Ben will just print more money, causing high food and commodity prices, etc. So, be careful what you wish for.

Frankly, I hate BofA, Wells and the TBTF banks. But the mortgage insurers are acting just as bad.

[NativeNewYorker]

Nothing like writing puts in a declining market.

[Varsity Flight]

**** banks. But we should keep the finger pointed straight at the body who created this incredible mess we are in the US government, primarily congress and administrative agencies. It’s the only way to make the argument for smaller government and against the enormous expansion of government that will be urged when the next leg of the bubble bursts *****

Then the so called “banks,” if they are in reality private enterprise need to “call em on it” in the first place, and refuse to go along with any govt. loan program that involves no collateral, even if it means focus on a different business model. Furthermore, the bundling takes the responsibility to an even higher level.

[Neidermeyer]

You mean the insurer *knew* the loans sucked, but insured the deal anyway?

***********************************************************

You may not believe this but they would take a sample of the loans and inspect them with one eye shut... and if the sample failed underwriting they would throw out the bad loans in the sample and replace them with other randomly selected loans and keep doing that process until they had a “good” sample that passed... TOTALLY FRAUDULENT in both origination and in underwriting... then to make it even worse the banks held the notes and didn’t foreward them to the trusts making the trusts invalid as they legally held NOTHING...

But at least everyone made their year end bonuses!

[NativeNewYorker]

I traded securitized mortgages when they were honest. This makes me physically sick.

[NativeNewYorker]

I traded securitized mortgages when they were honest. This makes me physically sick.