Bank of America is getting whacked evern harder after an S&P downgrade, and ongoing concerns about mortgage-putbacks.In the last couple of days we’ve published the work of hedge funder Manal Mehta who claims that Bank of America is on the hook big time for faulty mortgages that may be “put back” to the bank by the GSEs.
As this news has dovetailed with foreclosure-gate, it’s obviously causing considerable consteration among bank investors.
An analysis from Chris Kotowski at Oppenheimer suggest that Mehta’s sensational claims are not justified. Here are their four key points.
- The report claimed that BAC had a “potential liability” of $21.8B to the GSEs on mortgage put-backs. This claim appears demonstrably exaggerated to us based on a now-reasonable amount of GSE data.
- In a series of reports we have found a fairly stable relationship between the amount of FRE’s repurchase requests outstanding at period end and the actual put-backs in the following quarters. We work through that maths again in this report, and it does not get us anywhere near $21.8B.
- The report also claimed a $7.2B “potential” liability to monolines and a $45B of “private-label” issues that in our view have no demonstrable basis in fact, and there are no historical precedents or data. Anyone can sue for anything. It does not mean they will get it.
- Given the demonstrably exaggerated and sensational nature of this claim, we would question the rest as well.
- The robo-signing controversy is a black eye for the industry, but we have seen no evidence of widespread foreclosure attempts on loans that were not in fact seriously delinquent. In the end, we expect the legal system to find a workable solution to clear the current backlog.