Ouch, That’s Gotta Sting – Bank of America’s $20 Billion Warning Letter from Insurance Industry
Caught this over at Livinglies
(Full Letter Below)
On September 2, 2010 Bank of America was warned about their liability in shady securitizations, mortgages and foreclosures. The letter states directly that some 50% of all loans including HELOCS “qualify for repurchase by BOA in the securitizations insured by them.” It estimates liability of at least $10-$20 Billion just for members of AFGI (Association of Financial Guaranty Insurers).
“While BOA has publicly announced its intention to contest its representation and warranty obligations on a “loan by loan” basis, AFGI submits that this defensive posture will soon prove ineffective in shielding BOA from the financial, accounting, legal and other implications of its massive obligations to our industry members.”
The implications of that statement are enormous. The insurers are saying that BOA has liabilities far in excess of what BOA has publicly disclosed and that the AFGI members intend to collect. The implications regarding “ownership of the loan” are even more dire for pretender lenders like BOA. This letter clearly provides corroboration of the fact that the receivables were securitized and not the actual notes or mortgages.
AFGI goes further. It claims that BOA knows these facts and has not been honest in its disclosures to anyone. They want to know why the disclosures have not been made. “A number of our industry members have pursued laborious loan by loan representation and warranty put back process. The thousands of loans already repurchased by BOA in this process provide a statistically significant indication of the magnitude of the BOA liability to our industry members.”
With the waivers of subrogation contained in those insurance contracts and the obvious peddling and piecing of loans into multiple tranches and bonds, it is difficult to imagine a scenario wherein a judge, applying black letter law, will conclude that the identity of the creditor can be determined, or that the amount of the borrower’s obligation can be determined, or that the obligation, even if determined, is actually secured by a valid mortgage or deed of trust. The die is cast. The only way the pretender lenders can come up with legal foreclosures is if the law is actually changed retroactively. Politically and constitutionally, that doesn’t seem possible.
The failure of BOA and the other mega banks to come clean on this is what lies at the heart of our economic morass. It CAN be cleaned up and with some degree of fairness to ALL stakeholders — but not by bullying.
The only way this is going to get cleaned up is loan by loan settlements in which we do the best we can to provide the right incentives for all stakeholders to agree or be forced to comply with an equitable solution. Anything one-sided will not work.
Principal correction (that is what it is, not “reduction”) is the only impediment to getting this process rolling. Investors can strive for full par value with put-backs but we all know that the cases will be settled for less. Homeowners can strive for full ownership of their homes and that is exactly what will happen if the banks continue to insist on digging their heals in issues for which they have no legal support. Homeowners will leap at the chance to straighten this out WITH mortgages and enforceable notes and encumbrances, but only if the incentive is there for them to do so.