On the surface this looks like a win for the investors who lost billions when they bought lousy and in many cases FAKE mortgage backed securities.   But the question for Henry Homeowner who is wrestling with his own mortgage woes is, what does this mean to me?  Will I benefit from this “win”?

I have posted below comments and editorial from Neil Garfield @ LivingLies, Christine Riccardi @ Housing Wire, and a related post from the Subprime Shakeout website.

As far as my take…Let’s see the specific 530 RMBS to which this cases was pointed.  If your mortgage is inside (or was supposed to be inside) one of these allegedly held in Trust by the Bank of New York Mellon then you should have a leg up on BofA, as to your rights as a borrower and BofA as the servicer.  We’ll see.

- The Bank Slayer

NEIL GARFIELD COMMENTS & NOTE: The investors put up the money for the funding of mortgage transactions with BOA and other investment banking operations brokering the deal. Now BOA is about to pay the largest settlement to investors so far. The real question is that if the investors were the real creditors, which they were, then the obligation from borrowers should be prorated downward. If BOA is buying these pools that were never filled it doesn’t mean that the pools gain any more credibility as having the assets claimed for the pool than they had before.

And if BOA wants to move into the shoes of the investors they are faced with the same conundrum that the investors had when they decided to abandon claims against homeowners and seek redress from BOA, to wit: do they really want to move directly into the line of fire of a hail of defenses, affirmative defenses and counterclaims for predatory and fraudulent lending? And is there anyway that they can say that their claim was secured when the loans were never transferred by proper documentation or delivery?

This is a classic PR move for Wall Street. This is a fake scenario in which the true liability is being masked by a friendly deal. They are taking hundreds of billions and probably trillions in liability and attempting to distill it down to what appears to be a large a number but in reality is less than 1% of the total liability. This isn’t the end of it even if they want it to be.

But in the meanwhile, brokers and investors will be hearing what they want to hear and BOA stock will inch up a bit.

The reality is that these bonds are worthless  and always were worthless. Any balance sheet item anywhere is a fake if it is based upon mortgages or mortgage bonds whose value is derived from mortgage loans.

The loans were not originated in a standard contractual manner — the borrower and the lender were shown, and each agreed, to two different sets of documents. They treated the loans as if they were transferred but never actually transferred them. So the mortgage was invalid at inception and even if it wasn’t, is not perfected as a lien. The amount due is clearly effected by these settlements, but more than that, we can see that the investors as creditors have clearly abandoned their claims against the so-called borrowers

Investors, creditors stand to benefit from BofA settlement (Housing Wire)

Posted By CHRISTINE RICCIARDI On June 29, 2011 @ 12:33 pm | No Comments

The $8.5 billion Bank of America (BAC^[1]: 11.14 0.00%) settlement with investors of residential mortgage-backed securities issued by Countrywide Financial Corp., which the banking giant acquired in 2008, will have positive ramifications for both creditors and investors, according to analysts throughout the industry.

Bank of America reached an agreement^[2] with Bank of New York Mellon (BK^[3]: 25.44 0.00%), which served as trustee for 530 RMBS trust with a total balance of $424 billion, to reimburse investors who lost money on failed securities.

Barclays Capital analysts said Countrywide deals and other nonagency RMBS will now be more attractive to investors because of the potential return. For the most part, Barclays said, nonagency investors only assume small benefits from rep-and-warranty-related repurchases.

“A less negative (or positive) development on any of the (housing) issues could help alleviate price pressures,” Barclays said. “We believe the headline housing data will improve in the coming months, roll rates will continue to improve and this news should help nonagency prices.”

Barclays analysts expect cash flow from the settlement will most likely filter into the trusts that represent 226 deals involved in the complaint, thereby benefiting Countrywide cash flows, “as these effectively come in as faster prepays and reduce total losses.” Cash flows on Alt-A securities might hit senior mezzanine and even junior mezzanine loans, Barclays said. Subprime bonds should also benefit.

“Deals as part of the settlement could see a direct benefit of 8 to 10 points of additional cash flow,” analysts said. “Even if we assume that the settlement covers all of Countrywide outstanding ($285 billion), the benefit would be at least three to five points of additional cash flow.”

The $8.5 billion settlement represents about 10.8% of the $79 billion outstanding on the list of Countrywide deals repurchased by BofA. The original balance of all these securities was $179 billion. BofA is paying about 4.8% of that original balance, Barclays said.

Moody’s Investors Service said the settlement, alongside its $5.5 billion reps and warranties payout, reduces BofA’s potential exposure to higher losses under a stress scenario. And while BofA’s earnings will undoubtedly suffer in the second quarter, Moody’s expects the bank’s capital ratios to remain above the same period of 2010.

“The costs incurred are at the high end of the range that Moody’s had previously estimated Bank of America might be required to pay to resolve these matters,” said David Fanger, Moody’s senior vice president. “However, following today’s settlement and the announced addition to reserves, Moody’s believes that (BofA’s) remaining representation and warranty exposures are no longer a negative credit concern.”

On June 2, Moody’s placed the banking giant on review for possible downgrade^[4], saying analysts will evaluate the bank’s standalone financial strength to see if credit-risk improvements were made over the past few years. Moody’s expects the settlement will have positive credit implications.

BofA’s overall liability for Countrywide assets could reach $24 billion, according to Barclays based on the percentage of deals in the settlement. However, other securities could be concentrated in cleaner vintages, Barclays said.

Bank of America’s stock closed at $10.82 Tuesday after word of the settlement leaked. Shares of the component of the Dow Jones Industrial Average opened at $11.15 Wednesday, and activity in BofA is helping push the DJIA toward three days of gains^[5].

Breaking News: BofA Close to Reaching $8.5 bn Settlement with
BlackRock, PIMCO (100th Post)
Posted By igradman On June 29, 2011 (12:10 am)

As part of the Subprime Shakeout’s 100th Post (woo-hoo!), I bring you an analysis of some big, breaking news: today, the Wall Street Journal reported that Bank of America was closing in on an agreement with the
investor group led by Kathy Patrick to pay $8.5 billion to settle claims over mortgage backed securities.  If true, this would be the largest MBS settlement to date arising out of the mortgage crisis.

I first reported on this investor effort back in October 2010.  You can find my initial take here, a link to the demand letter sent by Patrick here, and a link to the response fired off by BofA here.
While we heard early in 2011 that the parties would extend all deadlines while they negotiated, we had heard very little about the progress of these efforts until today.

While the details of the purported settlement are sketchy, the WSJ report states that the current investor group includes 22 institutions, including BlackRock, PIMCO, the New York Fed, MetLife
and Freddie Mac, which collectively hold $56 billion worth of mid-2000s vintage MBS.  Though it did not report on any impending settlement, Bloomberg also published an article today on these
negotiations, and stated that the value of the securities at issue was $84 billion, while the original principal value of the securities was $182 billion.  While it is not entirely clear how these numbers line
up, my best guess is that the investor group holds approximately $56 billion of the $84 billion outstanding.

What’s also unclear is how much of the reduction in the value of the bonds at issue is as a result of pay-downs and prepayments, and how much is as a result of the trusts taking losses on foreclosed properties.  Thus, it is difficult to assess what percentage of potential damages from investor claims is being born by BofA under the settlement.  My initial reaction is that, while the absolute dollar amount sounds large, this settlement is ultimately fairly small compared to the potential damages.

This result would be consistent with the consensus among commentators regarding this investor group, including some of the comments contained in today’s Bloomberg article and my initial take on this effort: namely, the investors involved have significant other business dealings with BofA (a.k.a. conflicts), and thus would not seek an aggressive settlement.  At the same time, BofA has exhibited a growing interest in resolving its legacy RMBS liability, and thus would be interested in entering into a sweetheart settlement with a prominent group of investors that would set a precedential ceiling on future recoveries and discourage other investors from coming forward.

Without seeing the terms of the settlement and the details of the group’s holdings, it’s impossible to know what claims are being released in this settlement and how the proceeds are to be shared. For example, if the group is being paid outside of the trust waterfalls, and thus receiving the entire $8.5 billion, then the investors would actually be recovering much larger proportion of their potential damages (while potentially throwing the other investors who did not participate in the settlement under the bus, either by purporting to release their claims, or by making it impossible for those other investors to gain standing to sue).

However, sources have indicated that the settlement funds will actually be paid into the trust waterfalls.  This would be ostensibly more equitable, in that all bondholders would be entitled to receive a share of the settlement proceeds, depending on their seniority. However, query how equitable it really is for a portion of the bondholders (and most likely the senior portion, since these are primarily institutional investors) to set the settlement amount for the rest of the non-participating bondholders, and to receive the lion’s share of the benefits based on their more senior bond position. Whether the investor group could or would engineer such a settlement remains to be seen.

Regardless, the fact that these investors got any money at all out of the nation’s largest bank, let alone a material dollar amount, might actually encourage other investors to come forward.  A settlement of this size would reveal that BofA’s initial rhetoric, that it would fight these claims tooth and nail until they were forced to pay, was just that–empty rhetoric.  For example, BofA CEO Brian Moynihan stated
during the company’s third quarter 2010 earnings call that, “we will go in and fight this.  It’s worked to our benefit to—we have thousands of people willing to stand and look at every one of these loans.”  Further, this settlement undermines BofA’s recent estimate that the cost of its legacy RMBS putback issues would not exceed $10 billion.  BofA cannot seriously assume that this is the only large investor group with which it will have to tangle over defective Countrywide loans.

The simple truth is that investors have significant amounts of viable repurchase and Securities Act claims stemming from their purchase of Countrywide-issued or originated MBS, and BofA will be forced to confront many additional claims by investors in the coming years.  These additional investors might not have the same level of business dealings with BofA and thus might be willing to take more aggressive steps in pursuing reimbursement for its losses.  In that case, BofA’s strategy of creating a lowball settlement to discourage investors from coming forward might end up backfiring and further eroding the already strained capital on BofA’s balance sheet.

Article taken from The Subprime Shakeout – http://www.subprimeshakeout.com
URL to article:  breaking-news-bofa-close-to-reaching-8-5-bn-settlement-with-blackrock-pimco-100th-post.html

David Leibowitz posted a short blurb on stripping liens from a property.  Bottom line is that the “underwater portion” of a mortgage may be fair game as it is unsecured.  This is a huge benefit for investor or the average homeowner who also has a rental property or two.  Too bad it is not readily accepted for homesteads (yet).

Although bankruptcy may be an option or even the answer,  property owners should explore all options

Chapter 13 can save an investment property – Lien stripping in action

by David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney

Today, a Wisconsin client asked what we could do to help save his investment property. It’s worth only about $70,000. It has a first mortgage for $80,000 and a second mortgage for $30,000. Our client bought the property at the top of the market. He can afford the first mortgage, but not the second. And he certainly doesn’t want a short sale or a deficiency judgment. He makes enough money that he could afford to pay it. What can be done?

Our client has little other unsecured debt.

But the entire second mortgage really is unsecured – there’s no equity in the building to support it. So in chapter 13, we can treat that debt as unsecured and strip away the second mortgage.  Instead of paying 11% interest on the second mortgage, our client can pay it off in full over a period of five years – and he could afford to do that.  Not only that, but $10,000 of the first mortgage can also be treated as unsecured and paid off in full over 5 years – without interest. That’s because it is perfectly OK to modify a non-residential mortgage loan in chapter 13 even though you can’t modify a mortgage loan secured by your personal residence. Wasn’t that a smart idea of Congress to reject mortgage modification? Gee, we really could have made some progress with our mortgage crisis.

Anyway, our client will be able to keep his building, reduce the mortgage considerably, pay off his debts over a reasonable period of time without interest and get the second mortgage lien released, thanks to the creative use of chapter 13.