The Banking Gears of Housing


The banking gears of housing – Bank of America sells mortgage servicing rights on large loan pool to Fannie Mae.  400,000 loans shifted to Fannie Mae with $73 billion in unpaid principal.

Things just seem to get more perplexing with the housing market.  Back in August the Wall Street Journal discussed a deal between Fannie Mae and Bank of America.  The deal is odd even for the current banking system we have in place.  It was reported that Fannie Mae purchased the servicing rights to 400,000 loans for the grand total of $500 million.  Why would this be an issue you may ask?  Well first, Fannie Mae being a GSE does not specifically service mortgages so buying a pool of loans with unpaid principal of $73 billion seems out of place.  It also makes you wonder why a bank that has faced some troubles during the financial crisis would unload so many loans back to the government.  This concern clearly does not go unnoticed and a Representative from the housing battered state of California sent a letter to the Federal Housing Finance Agency (FHFA) asking for more details on the deal.


The letter from Representative Darrell Issa

letter to fhfa

Source:  Oversight Committee

In the letter, it is noted that the bank decided to sell the portfolio for a loss because the value of the loans were expected to deteriorate even further:

“The loans have a 13% delinquency rate, and more than half of the loans are in troubled U.S. real estate markets.”

Is this another form of bailout going on here?  Why would the bank sell such a large loan portfolio back to Fannie Mae which is now under conservatorship?  The pool of mortgages are already showing an unusually high default rate.  The housing market is unlikely to bounce back soon and to the contrary, is already showing signs of a further correction ahead.

Read the rest at My Budget 360