Corporate fireman and Bank of America CEO Brian Moynihan can give himself a little pat on the back over the putback deal he’s inked with mortgage giants Fannie Mae and Freddie Mac. In the wake his companies’s agreement to settle putback claims by the government-sponsored entities yesterday, Barry Ritholtz at The Big Picture today offers a pointed interpretation of the deal (emphasis Ritholtz’s):
A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.
Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac.
Ritholtz says these sweetheart terms support the notion that government ownership of Fannie Mae and Freddie Mac has enabled a “back door bailout of the banks.” Could the government really get itself so deeply intertwined with a bank that’s been hamstrung by its own mortgage mistakes? It’s certainly possible.
mtaylor [at] observer.com | @mbrookstaylor
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