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The sneaky bailout Bank of America just got from American taxpayers

“Where does it end?”

Guess who now owns even more of Bank of America’s disastrous mortgage portfolio? You do, America. Because Fannie Mae is not a government sponsored entity, you own Fannie and because Fannie just bought the servicing rights to a substantial amount of bad loans from Bank of America, you just gave a sneaky backdoor bailout to BoA.

“Where does it end?” asks Fortune Magazine’s Abigail Field. Fannie Mae bought the loans for more than $500 million, despite BoA getting more bailout funds from the government (as part of TARP) than any other bank. According to the Wall Street Journal, an undisclosed number of loans were purchased by Fannie, but prior to the sneaky bailout, “seven million loans [were] still causing the most problems.”

BoA has had a tough year with failing loans, federal, state and homeowner lawsuits, and stock that that has taken a 40% nosedive in 2011 alone, putting them in the position to need to raise capital. Enter your tax dollars, but not in the traditional form of TARP funds.

Field noted, “the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to “deteriorate further,” the goal of the intervention can only be to fix Bank of America’s capital structure, which is easier for the government to do if it overpays for the rights.”

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Buying up defaulted loans is normal, but in this case? Not so much.

The purchase of defaulted loans is not an uncommon practice, and can be lucrative if “cheaply produced foreclosure paperwork isn’t questioned, and if the foreclosures have equity and can be resold easily with lots of junk fees,” Field says, “but the mortgage servicing rights Fannie Mae bought are stinkers: they have a 13% delinquency rate, which means lots of foreclosures and loan modifications.”

Fortune Magazine reports that Fannie Mae is purchasing “the servicing rights in order to transfer the day-to-day management of those loans to a different company” which they deem a signal that Fannie is overpaying and if the rights were worth what they paid, a private company would have just bought directly from BoA, but instead, Fannie gave them a bailout.

The purchase is confusing as Fannie Mae just sought a bailout of their on in the form of $5.1 billion just last week. This feels a lot like a political move to pick winners and losers in the private sector, and there are more questions than there are answers about what appears to be Fannie bailing out Bank of America.

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

58 Comments

58 Comments

  1. Roberta Murphy

    August 12, 2011 at 12:45 pm

    Of course. Fannie Mae/taxpayers bail out Bank of America and Fannie Mae rents out foreclosures, opening doors for even more fraud, graft and taxpayer burden. All elected officials need to have their feet held to the fire on this one.

    • Randy Pereira

      August 12, 2011 at 2:06 pm

      Took the words right out of my mouth… Thank you Roberta.

  2. Brad Officer - Short Sale Jacksonville

    August 12, 2011 at 1:55 pm

    The Fed is out of control! …..and $500mm? That's it? I'd bet BOA has well over $500mm in pending short sales. If they needed the cash, why didn't they start waiving these deals through their crap system?

    (I had to delete all my other thoughts before posting)

  3. Max Duran

    August 13, 2011 at 12:04 am

    Why doesn't it surprise me?!?! Banks these days will charge you a fee for everything, it's sicking.
    And every year you hear stories of Bank executives getting their huge bonuses, and the rest of
    us in one way or another are giving them a life of luxury on a silver platter. Banks = Fraud!!!!!!

  4. Max Duran

    August 13, 2011 at 12:12 am

    Very good article Tara. I think Roberta summed it up pretty good.

  5. Sig

    August 13, 2011 at 7:40 am

    I agree with you Roberta but how do you hold a politicians feet to the fire? They have more slippery moves than a belly dancer.

    • Roberta Murphy

      August 14, 2011 at 12:29 pm

      Sig: We need to call, email, blog and make lots of noise about damaging propositions such as this. With Congress on vacation, it's a great time for us to give them an earful from "back home."

  6. Joe Loomer

    August 14, 2011 at 4:32 am

    If anyone thinks this is the end of the taxpayer bailouts of the toxic leftovers of the sub-prime mess, they're gravely mistaken.

    Navy Chief, Navy Pride

  7. Manhattan Beach Realtor

    August 14, 2011 at 12:48 pm

    If there's one thing we can count on, it's that the Federal Reserve system will do anything it can to protect member banks. The Fed is the real culprit, using dollar debasement as a form of taxation to fuel bailouts, and perpetual deficit spending.

  8. Steve Nicewarner

    August 16, 2011 at 2:58 pm

    I think the Feds made the decision in 2008 that BoA can not be allowed to fail no matter what. After all, does the FDIC even have the assets to seize BoA? Who would they sell it too?

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