Taxpayers Bailing Out Bank of America

The U.S. government is still in the business of bailing out banks with taxpayer money according to an article published in The Wall Street Journal. Bank of America …

The U.S. government is still in the business of bailing out banks with taxpayer money according to an article published in The Wall Street Journal. Bank of America is said to have sold 400,000 non-performing home loans to Fannie Mae for $500 million. The loans have a unpaid principal balance of $73 billion, but there is no guarantee the government will collect on the debt. A spokesperson for Fannie Mae said the organization does assist high-volume loan servicers in mitigation loss, which suggests that the practice will continue. For more on this continue reading the following article from The Street.

The official bailout of the financial system may be over, but the government is apparently far from finished propping up big banks, as evidenced by the news that Bank of America(BAC) has struck a deal to dump a bunch of near-worthless home loans on U.S. taxpayers.

According to a report in The Wall Street Journal Bank of America has sold the rights to process and collect payments on 400,000 home loans to Fannie Mae(FNMA.OB), the government-controlled mortgage giant. The loans have an unpaid principal balance of $73 billion, but are being sold for $500 million, according to the report.

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Doesn’t sound like a bad deal for the government, unless that $500 million price tag will soon be too steep, which is what “a person familiar with the deal,” told the Journal.

Fannie Mae spokeswoman Amy Bonitatibus would not confirm the deal in an email exchange with TheStreet, saying only that “Fannie Mae does not service loans but has a history of facilitating transfers of portfolios to high touch servicers in an effort to mitigate credit losses.”

Mitigate credit losses to whom? One hopes the answer isn’t Bank of America, which ought to take its own losses. Maybe the government is the one on the hook, but then why wouldn’t it try to put back the loans to Bank of America, as it is attempting to do with nearly $30 billion in loans?

The line about “high touch servicers,” is also noteworthy, suggesting Bank of America stands to lose little by not collecting on these loans. If that is the case, why doesn’t the government push the bank to pay more attention to collecting on them?

Like so many interactions between the government and the banks these days, this quiet deal warrants closer inspection.

This article was republished with permission from The Street.

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