A fight in the offing

There’s a long list of people that have a bone to pick with banks that have been very slipshod in the way that they have managed their foreclosure and mortgage processes. And to that list of people with a fighting chance of winning this fight.

You can add the Federal Reserve. And why not? It’s been two years since the Fed purchased mortgages worth billions of dollars in mortgage securities. And as part of this financial bailout that they have extended towards banks. The demand is now forthcoming from the Fed to make the banks buy back some of these bad mortgages. That they lumped onto the Federal Reserve.

And the single largest villain in this pantomime piece is the Bank of America. The Federal Reserve has joined Pimco and BlackRock in taking on the Bank of America for the simple reason. That they had accumulated more than $2 trillion worth of mortgage securities over a period spanning from 2004 to 2008.

The Bank of America has already tried its best to deal with the furor surrounding it over whether it handled foreclosures in a proper manner or not. On its part, the bank insists that it has not handled any foreclosures incorrectly nor have any been erroneously initiated. Instead, it announced on Monday that foreclosure processes would be resumed in 23 states across the nation as soon as possible.

There is, of course, the burning questions that linger over how the foreclosure crisis has affected. Even devastated families, across the length and breadth of America. But the bigger question should be the manner in which these loans were first created and then managed. And that could cost the banks a lot of money in the long run. There are clear camps being formed in this war, and in one corner are mortgage holders, including the government. And other investors while in the other camp you have these big banks that are looking to get back their money one way or another. It’s a very grim, even morbidly funny, situation.

If the Fed and its allies have their way, banks will be forced to shell out billions and billions of dollars and this is beginning to worry. The fat cats of the banking world that are now so despised and hated the world over for the manner. In which they have helped destroy economies the world over. Can a buyback be forced at all? It is a debate that has analysts pondering and banks worried. Seriously worried. It also means that there are some very absurd alliances being formed.

Remember that it was the Bank of America that was bailed out twice by the government and its institutions that includes the Fed. And it is the Fed that is trying to take them down now. It’s a gunfight that will see shares take a beating and investors lose the only question is in which camp they will be. And the result might set a precedent for institutions such as the Bank of America that finds itself in a bog after the reality of reality has set in.

 

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