The Congressional unlimited bankroll guarantee of Fannie Mae at the insistence of the Fed has just cost US taxpayers another huge chunk of money.
A reader informs me that my take on the following story may be inaccurate, that Bank of America did not sell the loans but rather the servicing rights. A closer reading suggests he is correct. However, I am not going to let a good rant that follows go to waste. Whatever the sale price, or the sale, US taxpayers should not be involved - period. The title of this post was modified.
The Wall Street Journal reports BofA Sells Part of Mortgage Portfolio to Fannie MaeBank of America Corp. has agreed to sell part of its home-loan portfolio to government-controlled housing giant Fannie Mae, as the bank looks to shed assets and pare its exposure to an array of mortgage woes.Taxpayers on the Hook
The deal, finalized last Friday, will deliver the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73 billion, people familiar with the deal said. The purchase price is more than $500 million, one of these people said.
The move is part of the Charlotte, N.C., lender's strategy to sell noncore holdings, rid itself of mortgage problems and preserve capital as it repositions its balance sheet to withstand future economic shocks. The bank's shares are down 43% this year amid concerns about BofA's ultimate exposure to mortgage-related losses and lawsuits.
The rights to the 400,000 loans will be transferred to Fannie Mae over four months, starting in September with the first slug of 100,000.
Note: I believe what follows to be in error, yet the essential idea is not. I will strike-through the parts in error as per the above addendum.
Those loans have a negative value.
Now taxpayers are stuck with $73 billion in troubled loans and had to pay $500 million for the privilege. This is yet another outrage in a long series of bank bailout outrages.
The idiots at Bank of America who purchased these loans in the first place should all be fired and Bank of America should be in receivership because it is clearly bankrupt.
Instead Bank of America executives receive massive bonuses for the rape and pillage of US taxpayers.
If you are looking for a reason Bank of America plunged 43% this year, you now have it. It had at a minimum, $73 billion in mortgages clearly not marked-to-market. How much more is it hiding?
And how much more garbage is the Fed going to concoct to ram down taxpayer's throats before US citizens throw the Fed out on its ass? The time to abolish the Fed is long overdue. There never should have been a Fed in the first place.
The Fed is nothing but a transfer-of-wealth tool from taxpayers to bumbling idiots at banks who cannot see bubbles to save their lives. Then again, the moral-hazard bailout policy of the Fed suggests the prudent thing for bank CEOs to do is to act like stupid idiots.
Mike "Mish" Shedlock
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.