Bank of America Death Watch Update: Lawsuit in Washington, Elevated GSE Claims
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The case involves ReconTrust, a foreclosure trustee that forecloses loans serviced by BofA and is wholly owned by BofA as well. McKenna argues in the court filing that ReconTrust has “failed to comply with the procedures of the Deed in Trust Act in each and every foreclosure it has conducted since June 12, 2008.” That’s pretty unequivocal.
Among other things, ReconTrust doesn’t have a physical office in Washington, as required by state law. So homeowners facing foreclosure don’t have a physical site to register their complaint with the trustee. ReconTrust is also supposed to be under state law a neutral third party in managing foreclosures and trustee sales. Yet they are clearly biased on behalf of the lender – aside from being owned by them. They have also failed to contact borrowers about foreclosures, failed to prove that the borrower is in default and that the lender owns the property, failed to conduct trustee sales in public, and failed to legally produce documents relevant to the foreclosure. This includes robo-signing and document fabrication. McKenna also accuses ReconTrust of illegal fee increases and a lack of transparency.
ReconTrust’s only alibi here is that federal law pre-empts the state’s Deed in Trust Act, leaving the state unable to pursue the claim. Needless to say, McKenna doesn’t think much of that. He is asking for $2,000 for every violation, and remember, the assessment is that every foreclosure ReconTrust has conducted since mid-2008 has been fraudulent.
And that’s not all. You may remember that BofA started this kickoff of settlements by closing out claims with Fannie Mae and Freddie Mac on repurchases of bad mortgage bonds. That was supposed to top out at $3 billion. But it looks like that number will increase:
New demands for refunds on soured loans from the two government-sponsored enterprises are coming “in numbers that were not expected based on historical experience,” the Charlotte, North Carolina-based bank said yesterday in its quarterly filing. Fannie Mae and Freddie Mac are being “more rigid” in resolving demands, said the bank, the worst performer today in the Dow Jones Industrial Average.
Chief Executive Officer Brian T. Moynihan, 51, has booked about $30 billion in settlements and writedowns to clean up faulty mortgages at the biggest U.S. bank since succeeding Kenneth D. Lewis last year. In June, the firm said that second- quarter charges for soured loans would probably be enough to cover remaining repurchase liabilities unless the “behavior” of the two GSEs changed from previous experience.
“Yet again, another line in the sand from Bank of America turns out to be fungible,” said Tony Plath, a professor of finance at the University of North Carolina in Charlotte. “I don’t think it’s anything nefarious, it’s just that they don’t know what the magnitude of losses in that portfolio will be — and until they do, none of their numbers have credibility.”
Precisely. And this is why BofA is getting killed in the market today. They cannot stop the bleeding.
We may need to start a death pool.