CNBC is reporting that Bank of America has agreed to sell part of its home loan portfolio to Fannie Mae, in part to limit its exposure to the troubled mortgage market. The deal is reported to involve 400,000 loans with unpaid principal balances of $73 billion.
So what does this mean for folks outside of Wall Street?
Well, as a taxpayer, I’m a little troubled by this story–particularly given the fact that just a few days ago I wrote here that Fannie Mae was asking for another $5.1 BILLION in government bailout money. Fannie Mae has been a colossal money pit and recipient of our tax dollars for years. And now they’re adding 400,000 more loans to their inventory? It appears this beast is being fed rather than strangled. Expect more and more of our tax dollars to bail out Fannie again in the quarters and years to come.
With respect to homeowners, I see the potential for even more headaches when dealing with the bank. Every time a loan is transferred, there is the potential (I would argue a likelihood) for paperwork and tracking to be messed up. This simply adds one more potential pitfall. We’ve seen countless instances of banks not properly documenting transfers (which was a major force behind the robosigning controversy). I fully expect mistakes will be made on some of these 400,000 loans. This, in turn, creates title issues and, more importantly, a risk of payments being misapplied with wrongful foreclosures to follow.
To me, this story is as much about what it didn’t say as what it did. Bank of America is scaling back its mortgage business. Most likely, loans it acquired through its takeover of Countrywide are to be included in this 400,000 loan pool. Part of this downsizing is probably in compliance with “Too Big To Fail” legislation whereby BoA needed to get a little smaller. However, I think Bank of America’s decision was partially based on current and future problems in the mortgage industry.
Don’t be mistaken–we’re in the middle of a foreclosure crisis. It’s hitting homeowners and banks alike. Homeowners, who often times do not fight foreclosure when it is imminent, are continuing to lose their homes in near-record numbers. Banks, on the other hand, are facing increasing resistance from a growing number of homeowners who refuse to be run over (this is what I do as a foreclosure defense attorney). While I have no sympathy for the banks, this increased resistance is beginning to impact their bottom line–a trend I believe will continue. In many ways, I view this as almost a tacit acknowledgement of the problems in the residential mortgage industry and the difficulty the banks will have cleaning up their loan mess.