Yes, that Acquisition of Countrywide was So Good for BoA

I probably haven't been writing about this as much as I should, but it's beginning to look like Bank of America's ill-advised takeover of Countrywide Financial, and it's portfolio of fraudulent mortgages, is beginning to cause some real problems.

Basically, the sweetheart deal that they negotiated with the trustee, Bank of New York Mellon, would have them paying out pennies on the dollar for misrepresented and mis-documented mortgages.

First, New York Attorney General Eric Schneiderman opposed the settlement saying that it was unfair to investors.

Of course, the unfairness was a feature, not a bug, since BNY Mellon is desperate to reduce its exposure from their deliberate lack of due diligence.

Then, the FDIC opposed the deal, saying that they did not have enough information to evaluate the deal on its merits.

And if we know anything about the world of securitized mortgages and trusts, we know that more information means more bad news, as we have seen every time another rock gets overturned.

Well, now we have individual homeowners filing to block the settlement, because, as a sop to investors, the deal would have established a "rocket docket" for foreclosures:

Lawyers for the National Consumer Law Center said in a report prepared as part of the case that the proposed settlement “will speed up foreclosures, perpetuate existing servicing abuses in the system, and undermine federal programs designed to stabilize the housing market.”

Bank of America had hoped the $8.5 billion settlement would finally put much of this potential liability behind it, but the challenges have raised investor fears that the ultimate cost of the settlement could rise sharply. Anxiety about the extent of Bank of America’s legal woes has also weighed on the bank’s stock, with some estimates suggesting the ultimate cost could be in the tens of billions.

First, I think that the penalties, including tax penalties for improperly conveying the mortgages to the trust, are almost certainly in the hundreds of billions of dollars, and second, when an $8.5 billion payout is a sweetheart deal, it means that the banks are too big.

Oh, yeah, and I almost forgot: The FHFA filed a similar objection to the FDIC's and U.S. Bancorp is suing to get BOA to buyback the mortgages in yet another trust.

BoA would be, in a fair and just world, toast, and its executives would be facing criminal investigations.

In this world, however, it means that Obama and Geithner and Bernanke will be setting up someway to bail them out in order to insure executive bonuses "protect the banking system" with our money.

H/t Naked capitalism.

On edit:

It looks like the Nevada is claimed that BoA reneged on its loan modification agreement with the state, and so they are filing to abrogate the agreement so that they can sue:

The attorney general of Nevada is accusing Bank of America of repeatedly violating a broad loan modification agreement it struck with state officials in October 2008 and is seeking to rip up the deal so that the state can proceed with a suit against the bank over allegations of deceptive lending, marketing and loan servicing practices.

In a complaint filed Tuesday in United States District Court in Reno, Catherine Cortez Masto, the Nevada attorney general, asked a judge for permission to end Nevada’s participation in the settlement agreement. This would allow her to sue the bank over what the complaint says were dubious practices uncovered by her office in an investigation that began in 2009.

In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says.

The complaint says such practices violated an agreement Bank of America reached in the fall of 2008 with several states and later, in 2009, with Nevada, to settle lawsuits that accused its Countrywide unit of predatory lending. As the credit crisis grew, the settlement was heralded as a victory by state offices eager to help keep troubled borrowers in their homes and reduce their costs. Bank of America set aside $8.4 billion in the deal and agreed to help 400,000 troubled borrowers with loan modifications and other financial relief, such as lowering interest rates on mortgages.

I wish that I knew of a way to go short on the bad news piling up, and long on the eventual bailout.