Dear Representative Issa: Questions for Your Fannie Backdoor Bailout Investigation
Dear Representative Issa:
Thank you for investigating Fannie Mae’s purchase of mortgage servicing rights from Bank of America. As I detail below much more thoroughly than I did in my Fortune.com piece that you cited in your letter, the $500 million purchase is a backdoor bailout until proven otherwise.
The Key Questions
Your letter asks good questions and makes pretty thorough document requests. However, I think you can expose the bailout nature of this deal simply by getting plain English, main street answers to these questions:
1) How much was BofA making in servicing fees on these loans, minus servicing costs? How does that relate to $500 million?
2) Fannie justified the deal in part as a way to reduce its losses by switching servicers. How much was Fannie losing because BofA was servicing the loans so badly? How do those savings relate to $500 million?
3) A chunk of the loans were supposed to switch servicers in September. Has that happened? Who services the loans now? Will it be the same company or a different company that takes the rest of the loans? How confident is Fannie that the new servicer(s) will do a meaningfully better job than BofA so that the anticipated savings materialize? What evidence justifies that confidence?
4) How much did the new servicer(s) pay for the right to service the loans? Did Fannie provide the new servicer(s) financing for the deal? That is, how much money actually came out of the new servicer(s)’ pockets and ended up in Fannie’s coffers?
5) Did the new servicer(s) take the rights subject to any limitations? That is, did Fannie shift all the risk associated with the mortgage servicing rights to the new servicer?
6) How was BofA accounting for these rights? In general, how does BofA account for its servicing rights? How about the other big banks’ valuations?
You can check out the the rest here…