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Bank of America shares are getting crushed for the second day in a row over fears that the bank will be exposed to billions in mortgage repurchases.And indeed the headlines are scary — The New York Fed, PIMCO (also a branch of the Federal government!) and BlackRocks (BofA’s own partially owned unit) — want over $47 billion in mortgages repurchased!
But the market might be overreacting a little.
FT Alphaville makes several good points regarding the news, and the letter that was sent to BofA. For one thing, mortgage repurchases have been a drag on earnings for a while. This isn’t a new issue. Beyond that, these issues take years and years to drag through the courts. The bank isn’t going to one day wake up to a $47 billion bill.
Beyond that, much of the substance of the complaint is procedural (paperwork, foreclosure handling etc.) and not specifically that the bonds sold weren’t the ones advertised.
And even where they make the claim, as FT Alphaville reports, some of the bonds were specifically advertised as Credit Blemished Mortgage Loans, which means that there was disclosure about the sourness of the underlying mortgages.
Bottom line: This isn’t the kind of news which on its surface suggests BofA is in huge trouble. On the other hand, you always want to respect what the market is saying, when a stock continues to tank so aggressively.
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