Even Buffett can't stop B of A bleeding

Bank of America is raising capital through new deals, but its mortgage nightmares won't go away.

By Jim J. Jubak Aug 31, 2011 5:02PM
Jim JubakThe sharks are no longer circling Bank of America (BAC). They’ve moved in with jaws wide open.

Who knew that the $4 billion acquisition of Countrywide Financial would keep adding fresh blood to the water -- even now, three years after Bank of America acquired the mortgage lender in 2008?

Bank of America tried to stem the attack, first with a $5 billion investment from Warren Buffett, and then with Wednesday's announcement that the bank would sell half its stake in China Construction Bank. That sale would raise $8.3 billion. About $3.5 billion of that would go to improve the bank’s Tier One capital position.

But neither move put off the mortgage sharks.

First, a proposed settlement of $8.5 billion between B of A and former Countrywide investors, which was brokered by Bank of New York-Mellon back in June, is threatening to come apart.

Beating yesterday’s deadline for objecting to the deal, the Federal Housing Finance Agency -- which supervises Fannie Mae and Freddie Mac -- has filed an objection to the deal. So has the Federal Deposit Insurance Corp., the attorney general for the state of New York, and several smaller investors.

The settlement was supposed to limit how much of the $424 billion in Countrywide mortgages packaged into mortgage-backed securities Bank of America would have to buy back from investors. If the deal comes apart, the bank’s liability would soar.

Second, the state of Nevada has started legal proceedings to invalidate the state’s 2008 agreement with the bank on mortgage loans made by Countrywide in the state.

The agreement was supposed to provide for lower mortgage rates for homeowners who needed to modify their mortgages to avoid foreclosure. Instead, the state has argued in its filing, the bank raised interest rates, proceeded with foreclosures even when loan modification requests were in processing, and failed to meet deadlines for responding to requests for mortgage modifications.

Countrywide originated 262,622 mortgages in Nevada. If the state succeeds in getting the agreement invalidated, it would then be able to sue Bank of America over its mortgage practices.

The Nevada agreement was part of an $8 billion, multi-state deal that required Bank of America to modify mortgages in exchange for a limit on its liability.

Third, US Bancorp (USB), the country’s sixth largest bank, sued Bank of America on Tuesday in its role as trustee for investors who bought into a pool of $1.75 billion in mortgages.

The suit alleges that Bank of America (for which, read: Countrywide Financial) failed to exercise reasonable due diligence in underwriting these mortgages. By June 2011, the suit states, 46% of the mortgages in the pool were in default or more than 60 days delinquent.

The suit demands that Bank of America buy back all the mortgages in the pool, because so many -- 66%, in one sample -- breached Countrywide’s own stated underwriting rules.

The shares sold to Buffett and the sale of the stake in China Construction Bank were supposed to assure investors that Bank of America had the capital to meet its mortgage liabilities. But the liabilities threaten to overwhelm this new capital if these agreements to cap Bank of America’s liabilities come apart.

(And these three deals don’t end the bank’s problems. For example, American International Group has sued Bank of America for $10.5 billion.)

That $4 billion acquisition of Countrywide has cost Bank of America $30 billion in mortgage settlements. And counting.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of US Bancorp as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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Aug 31, 2011 5:45PM
After they took all the Federal money (OUR money) to help themselves out and they are failing and even Mr Buffett can't help them... well, Good bye B of A... been nice knowing you. Don't let the door hit you on the way out. Suggestion of the day - get your money out asap...  
Aug 31, 2011 5:45PM

Makes you wonder, was it REALLY 5bil from WB that got infused into BofA or was it some fudging of balance sheets to make it look that way to help fend off all of these so called "sharks". Why would WB pump 5bil into shark chum? He didnt get to be rich by having things like this blow up in his face.

Either way I guess 5bil and a "Unky Sam should be taxing the rich" comment looks good should BofA start asking for another handout.

Sounds fishy... er sharky.

Aug 31, 2011 6:09PM
And of course all those subprime loans that Countrywide made were done with due dilegence....NOT!  That is the problem in a nutshell.  They were handing out government backed loans and not even verifying if the people applying for the loans had a freaking job!!!!  And no one caught what they were doing.  So other lenders found out what they were doing and they jumped on the band wagon.  And if you were a loan officer and you question something you found yourself on the curb.  It was absoluting mindboggling!!!!!!   And were was our the governemnt  oversight as these government backed loans were just pumping through the system......partying​ with the mortgage lenders...wooohoooo.​.. good times...... 
Aug 31, 2011 7:53PM
Maybe my dream will come true and they will fold like an accordian. This company has abused people for far too long to still be in business. If I did 1% of the crap this company does to people in my business I would be gone long ago. They better not get any bailout this time either. Good riddance BofA. No ones gonna miss you! 
Aug 31, 2011 10:51PM

Oh please please please let bank of america go under.  That would be such a pleasant headline to read in the paper/online.  Bailouts are no longer an option...the public outcry and political cost would be far too great for any politician with half a brain to support.


If bank of america goes the way of the dinosaurs, as I pray it will, others will move in to fill the vacuum.  Smaller regional banks and credit unions will grow and absorb the customers and employees...but hopefully not the CEOs...


Might I suggest the public facilitate the demise by withdrawing their money or transferring it to other institutions?  Nothing like a good old fashion run on the bank!

Aug 31, 2011 7:38PM
If the deal with the Chinese goes through, I'll be looking for a new bank, maybe ought to be looking anyway.
Aug 31, 2011 7:16PM

I hate to be this way but I hope BOA goes under.  This serves them right after all the folks who's money they took wrongfully so in overdrafts.  What goes around comes around!



Sep 1, 2011 1:34AM
As I have said for the past 6 months, The word on "the street," is that you need to close all your checking and savings accounts at BAC. Divest of any BAC stocks, Now....BAC not only has numerous potential lawsuits not filed yet, but each week new lawsuits keep being filed against BAC. Smart Money, is walking away from BAC. The Sucking Sound is getting louder.
Aug 31, 2011 6:23PM

tbh, the amount of ill will their customers feel towards them doesn't help their case any.  Sometime back I remember seeing a survey on customer satisfaction, and Bank of America rated as the top 10 WORST in the survey.  On the upside, they couldn't rank below AOL which still took the top spot, but they were still quite close to the top of the list, along with Comcast, and a few others.


The biggest complaint, and what earned them such high customer ill will, was chief among the list of complaints, all them fees.  And they've certainly been giving themselves a heaping hand of these.  I will admit that I do have them as a bank; but I'll also say that I liked the credit union I used to have in New Mexico a whole lot better.  Only reason for this change is I now live in Jersey, and with the local branch 2,500 miles away, it's a little prohibitive.  This said, I'm definitely not a happy BoA customer, and share the same sentiment as so many others polled.


So now, they merge with companies that made bad decisions which got them in the sub-prime loan mess, got public bail out dollars, and continue to keep much of their customer base disgruntled and disatisfied; any wonder Buffet can't just bail them out now?  It's a maneagement problem there, and it's a customer service/relations nightmare....  Well on the upside AOL is still in business and they had the sort of corporate reputation that reeked, for a long time comming.  So that in itself won't be the death of them; but and this said, making comparisons to AOL isn't giving all that much credit.  Well their customer satisfaction rating in the survey did rank a wee bit better then AOL, and about on par with Comcast's....

Aug 31, 2011 6:59PM

Moynihan to Buffett – “Psych, who’s got who trapped by the short hairs now sucka? Welcome to my world.”

Sep 1, 2011 10:57AM
Breath of fresh air, maybe if they are going under then peoples loans will be sold to another bank who will actually modify loans, so the bank and the customer can actually prosper! Prayers being answered.
Aug 31, 2011 10:59PM
it is time for JP MRGAN/CHASE they are in this mess as well. The investors and Dept of Justice to look into this matter, the people are suffering, these are banks who brought economic disaster on our country for greed, still today ceo's of banks getting salries in millions of dollars, let alone stock options and benefits, the people unemployed, been foreclosed by chase, all the country. it is time for us-the citizens, the govt and investors to look into CHASE and investigated quickly without any further delay, the banks are still getting in billions from govt, to help to modify loan and help people who can not afford mortgage, we the people are willing to pay, but we need some help  from banks, it is us-people and the citizen of this country, bail them in time of need, but in return we are being foreclosed by chase, please investigate as soon possible, if want to see horror stories just go on internet search CHASE and you will find lot of proof. i rest my case
Aug 31, 2011 7:45PM

Maybe Warren pulled a Goldman and secretly shorted Bank of America on the sly.  That's a win win.  If B of A sold all of their desks and pencils, that would be enough money for Warren to get his money back.  And he is the number one creditor at the head of the line, even ahead of bond holders or holders of preferred stock.  Let's start a pool.  You buy a square for one dollar, picking the day B of A files for bankruptcy.  Can you say "General Motors?"

Aug 31, 2011 6:04PM

Well Buffett loaned Kemper Insurance one hundred million about 10 years ago, and that deal did not make him any money. And he lost money betting gas would stay above $4.00 a gallon a couple  of years back.

Anyway I have already lost money in BOA. I bought  the stock when it was $45.00 a share before all this mess started.  So what do I know.

Sep 1, 2011 2:41PM
As I read these comments I am certainly not alone in hoping they die a very quick death, in fact, we all feel the same way. Isn't it interesting how all of us HATE & DESPISE Bank of America and that goes for most all the banks.  They have no one to blame but themselves as they brought on this near collapse to our economy in 2008 which is still reeling from their very egregious business practices.  I bailed on them in 2008 as they won't get one more cent or excessive fee out of me. Don't you just love watching them squirm under this mountain of debt and untold $$$ billions of lawsuits facing them. Can't say it didn't happen to a more deserving company.  Old Moynihan, their CEO, is quivering in his shoes right about now.
Sep 18, 2011 12:09PM
Many would say that we need to cut government spending more than raise taxes as government spending it has increased substantially over the last few years due to 9/11 etc...
Sep 18, 2011 11:55AM
Guess I'll take the other side so we can have another perspective... Bank of America not going under... Countrywide is still a separate unit and if the lawsuits continue then Countrywide will just file for bankruptcy not Bank of America. Most of the problems are from bad mortgage loans on the books from borrowers walking away from their mortgage or not paying their mortgage and going into foreclosure. Interest rates today are at historical lows at around 4% at the moment compared to 22% when Jimmy Carter was president. Democrat Jimmy Carter had the highest misery index for any sitting president at around 16% with 70% marginal tax rates, gas lines, and Iran debacle. Today we have low marginal tax rates from the Bush Era 35% which appear to be ending under the democratic Obama. I expect we'll see higher interest rates in the future along with higher misery index. Better enjoy it while you can as we'll probably look at in a few years and be amazed that interest rates were ever at 4% for a 30 year mortgage?
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