Yes America, Wall Street looks after their fellow banksters and rewards them when the settlement for placing toxic garbage on the American taxpayer is better than expected.
As reported by By Tess Stynes of The Wall Street Journal, Bank of America Corp. (BAC) expects to take a provision of about $3 billion in the fourth quarter to buy back bad loans from Fannie Mae (FNMA) and Freddie Mac (FMCC) that were issued by its troubled Countrywide Financial unit.
The move represents the latest effort by the Charlotte, N.C.-based banking giant, which acquired mortgage originator Countrywide in 2008, to respond to the housing crisis. Countrywide's mortgages turned into some of the worst mortgages issued during the crisis and, ever since Bank of America bought the lender, the bank has had to handle growing loan losses.
Fannie and Freddie have been stepping up demands that lenders take back defaulted loans when they find that the mortgages didn't conform to their lending guidelines. The two giant mortgage buyers have been operating under federal conservatorship since September 2008. Keeping them afloat has cost taxpayers about $134 billion so far.
Last week, Fannie reached a $462 million settlement with Ally Financial Inc. to cover potential repurchases on $292 billion in mortgages.
Taken together, the Ally Financial and Bank of America settlements will result in a recovery of $3.3 for taxpayers, the Federal Housing Finance Agency said.
"While these agreements are an important step, (Fannie and Freddie) have other outstanding claims across a range of counterparties and they are being pursued," said Edward DeMarco, acting director of the housing agency, in a statement.
Bank of America also said it has received confirmation from the Federal Reserve that the company fulfilled its commitment to boost its equity by $3 billion, a condition of its repurchase of $45 billion in preferred stock in December 2009 acquired as part of the Troubled Asset Relief Program. It faced a year-end deadline to raise the equity and sought to raise the capital by selling assets.
If it hadn't done so, it might have had to pay some employees' bonuses in stock instead of cash. The bank also had warned investors it might need to make a dilutive share offering to raise the capital. Instead, it sold such assets as 51.2 million shares in BlackRock Inc. and the right to purchase additional shares in China Construction Bank Corp.
As part of the loan repurchases, Bank of America's home loans and insurance business is expected to post a $2 billion write-down in the quarter. The bank said the charge will have no impact on its Tier 1 or tangible equity ratios.
"These actions resolve substantial legacy issues in the best interest of our shareholders," said Chief Executive Brian Moynihan. "Our goals remain the same: Put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times."
The agreement includes a cash payment of $1.28 billion to Freddie and $1.52 billion to Fannie, both of which were made Friday. Executives from both companies said the agreement is in the best interests of all parties.
Last week, Allstate Corp. sued Countrywide over $700 million in residential mortgage-backed securities in which the insurer had invested. The suit contains similar allegations other investors have raised with mortgage creators, namely that lax underwriting standards are to blame for the collapse of the investment vehicles.
"These actions resolve substantial legacy
issues in the best interest of our
shareholders," said Chief Executive
Brian Moynihan. "Our goals remain the same:
Put these issues behind us;
focus on serving customers and clients;
and continue to help distressed
homeowners facing difficult times."
(No mention of the billions of toxic garbage left on
the books of Fannie and Freddie. Mr. Moynihan merely
wants to put these "issues" behind him and let
the children and grandchildren deal with it.)