Banksters' Big Win In Nationwide Foreclosure Fraud Settlement Includes $308B In Protection For Their Crappy 2nd Mortgage/Home Equity Loans

Bloomberg reports:

• Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and three other banks that settled a nationwide probe of foreclosure practices this month will get a bonus from the deal: protection for $308 billion of home-equity loans they hold.



• The banks that service about half the nation’s mortgages on behalf of investors will be able to share losses on their junior loans with bondholders and get credit toward the cash they pledged to spend in the settlement, said an Obama administration official involved in drafting the $25 billion agreement. Second liens would typically be wiped out before senior-mortgage investors take a loss, said Laurie Goodman, managing director at Amherst Securities Group LP in New York.



• It’s “a gift to the banks, at investors’ expense,” said Goodman, a member of the Fixed Income Analysts Society’s Hall of Fame. “A proportionate write-down of the first and second represents a reversal of normal lien priority.”

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• The settlement has been criticized by money managers including Scott Simon at Pacific Investment Management Co., who said investors who bought mortgage-backed securities will suffer losses as banks earn credits for easing loan terms.



• “This was a relatively cheap resolution for the banks,” Simon, the mortgage head at Pimco, which runs the world’s largest bond fund, said after the settlement’s Feb. 9 announcement. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

For more, see Banks Win Reprieve on Home Equity Loans in Settlement.