Saturday, January 12, 2008

More Shenanigans at Bank of America

Just when you thought the lies couldn't get any more brazen....

Bank of America is buying out Countrywide Financial at a hefty discount, as Countrywide is reeling from all the bad loans it made. So get this:

"I think it's positive for the borrowers," Bruce Marks, chief executive of Neighborhood Assistance Corporation of America said. "There are millions of home owners with unaffordable mortgages. The deal will allow Bank of America to restructure loans to what homeowners can afford."

Marks suggested that Bank of America will be able to help current Countrywide customers where Countrywide can't, because it doesn't give risky subprime mortgages, so it plans to convert them into prime loans.

News flash... whether or not it's subprime is NOT a question of whether it's fixed-rate or adjustable-rate. It's a function of the borrower's prospective ability to repay. So apparently BoA is going to have its High Priests of Accountancy wave their magic fingers over the balance sheet, and >poof!<>Either this is incredibly sloppy reporting, even by CNN's standards, or someone's blowing a particularly cheap grade of smoke. Fortunately, they did talk to someone who injected a note of reality:

"[This deal] doesn't make any difference to the home owner," said Hanzimanolis. "The only difference will be where you pay your bill to. Just because Bank of America is buying your Countrywide subprime loan, it doesn't change [into a prime loan] when they buy it."
But the story then goes back to cheerleading for good ol' BoA, friend of the working family & all that.

Taylor noted that restructuring loans also makes financial sense for the bank. "Bank of America may very well intend on having loans restructured to ones that are closer to prime loans and performing assets, because they would rather have the homeowners stay in their homes and pay their mortgages than face the alternatives."

In doing so, Bank of America may be able to recoup some of the losses it incurred from purchase of Countrywide, said Marks. Since the bank has already written off the value of many of those loans, it plans on getting strong returns by restructuring customers' loans.

Okay, let's take this one at a time. They've written off the loans... so they're not going to foreclose, but instead if they can get anything, even below market, they can get strong returns, stronger than expected at least. Ah, the joys of tax law. Speaking of which, how about having the taxpayers subsidize the entire deal? Which they're going to do... But that's another story.

"restructuring to avoid foreclosure," short version: Rewarding someone who took out more mortgage than they could afford, in order to avoid the painful consequences of dealing with a loan that should never have been written in the first place. Thus avoiding market discipline for irresponsible lender and irresponsible borrower.

Meanwhile, if you've been struggling to keep up on your payments? Sucker.... see how many current mortgages (versus, say, those delinquent 3+ months) get restructured. Holding off until you had a down payment saved up? Stooopid. Enjoy the higher rates and tighter credit check. Meanwhile, the guy next door, with the lower credit rating, no down payment, and more house than he can afford? He's going to get below-market interest for years, possibly the rest of his mortgage, so he doesn't get foreclosed. You, on the other hand, by showing some responsibility, demonstrated you're more than capable of making higher payments.

Responsibility is punished, and recklessness is rewarded.


No comments: