Bombshell – Large investors want Bank of America to repurchase mortgage bonds

October 19, 2010 by · Leave a Comment
Filed under: Industry News 

This mortgage mess is spreading and getting worst.  With light being brought that many of these mortgage backed securities were packaged purposely with known bad loans and sold to many investors that included some of the biggest funds and wealth managers in the country.

In the letter sent to BofA, they mention that there was breeches of contract and warranties that were broken.   Under those claims, they feel Bank of America has the obligation to re-purchase those bonds back that contains the mis-represented loans.   Currently they are asking a repurchase of $47 billion dollars of bonds.   The markets did not like this news and sent BofA shares down by almost 5% at the time of this writing.

This could set the precedent that could have many investors coming to other banks forcing them to repurchase bonds because of these mis-represented claims.   We should take this as healthy, we have many bad debts in the system that need to be dealt with.  This is the rule of law in effect and this should set the proper precedent for future generations.  What we need to stand-up against and not allow to happen is any bailouts to the banks if they become insolvent due to any legal actions that force them to be under-capitalized.  This is natural market forces and if some of these large banks need to be sold off and broken apart, then so be it.

No more  corporate welfare or socialization of losses to the public.   These banks took risks and only the smart and prudent should survive.  That creates strength in our financial system.   I have nothing against banks and I read history on banks and monetary history, it is very fascinating.  But when I read about an older time period and see how we handle things now, we have lost the most important aspect in our banking world, trust and confidence.   Yes there is pain when a bank fails but in the ashes we come through stronger and wiser.  Lets try and continue that tradition.

The Street – Some high-profile mortgage-bond investors reportedly want their money back from Bank of America as pressure intensifies on large mortgage servicers to take back loans that are going bad.

On Monday, a group of institutional investors represented by Gibbs & Bruns LLP said they had sent Bank of America a letter asking that it repurchase $47 billion worth of MBS. On Tuesday afternoon, a Bloomberg report indicated that the Federal Reserve Bank of New York, Pacific Investment Management Co. (Pimco) ,BlackRock, TCW Group and MetLife may be among those seeking buyback relief.

The news came after Bank of America detailed its buyback exposure of nearly $13 billion in a conference call that morning. It also helped send stocks down sharply in afternoon trading, with the Dow Jones Industrial Average plunging more than 200 points and BofA shares down 2.8% at $12.

The Bloomberg report said Pimco, the New York Fed and BlackRock sent a letter to Bank of America this week seeking to “force” the bank to buy back bad loans. The debt in question had been packaged into a $47 billion mortgage-bond securitization by Countrywide Financial before it was acquired by BofA.

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