Bank of America Says $10.7 Billion of Trades Wrongly Classified

The bank transferred mortgage-backed securities to a trading partner with the idea of receiving different securities later and classifying the deals as sales, the Wall Street Journal reported yesterday. The securities the bank received were similar to those it got rid of, meaning the transactions can’t be considered sales, the newspaper said.

Bank of America had disclosed in a March 31 financial filing that “certain sales of agency mortgage-backed securities should have been recorded as secured borrowings rather than sales,” bank spokesman Jerry Dubrowski said. “The handful of transactions did not have a material impact on the company’s balance sheet or earnings. They need to be viewed in the context of our $2.3 trillion balance sheet.”

It sounds so benign, doesn’t it? What this means is that BofA was, as we all have been saying for years now, trading interests in mortgage backed securities (i.e., indirect or derived interests in the actual loans) for other mortgage backed securities. The real intent was to distance themselves from the original transactions. Who were they trading with? In all probability one of the other banks that wanted to do the same thing. Bottom Line: You can ONLY state with certainty that a pool exists that CLAIMS ownership of the loan and that the owners were at that point in time the investors who created the pool of money that was used to fund mortgages, along with enormous profits and fees that were both unearned and unreported. The current owners of the actual receivables from the loan payments, the receivables from insurance, credit defaults swaps etc., cannot be known without discovery or compliance with the QWR. These trades are not on any exchange where you can go look them up. They are secret.

And that is why the note, assignment and indorsements don’t show up until moments before a hearing. It is because they never existed up until that moment. And often the note is a color printout rather than the original. Look at the other side of the paper to see if there are any indentations. In plain language they said they were transferring the loan but never did. So if you have a performing loan, you’ll wait forever to see an assignment because they don’t want to create it, until some final resting place is required. They are keeping their options open until they MUST show the chain of ownership.

Bank of America Says $10.7 Billion of Trades Wrongly Classified

By David Mildenberg and Dakin Campbell – Jul 10, 2010

Bank of America Corp., the largest U.S. bank by assets, said it wrongly classified as much as $10.7 billion of short-term repurchase and lending transactions as sales from 2007 to 2009 to reduce its end-of-quarter assets.

Bank of America said the inaccuracies aren’t material and “don’t stem from any intentional misstatement of the Corporation’s financial statements and was not related to any fraud or deliberate error,” according to a May 13 letter released yesterday from the U.S. Securities and Exchange Commission.

“A $10.7 billion accounting error would be a material event for about 99.9 percent” of U.S. banks, said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University School of Law. “It’s hard to see how the SEC can accept BofA’s rejoinder as being sufficient.”

SEC spokesman John Nester declined to comment.

The SEC sent letters to finance chiefs at about two dozen firms in March asking whether they employed accounting strategies like those at Lehman Brothers Holdings Inc. The bankrupt securities firm was accused of using repurchase agreements called Repo 105s to move assets off its balance sheet to hide leverage, thereby improving its capital ratios.

$2.3 Trillion

Bank of America had disclosed in a March 31 financial filing that “certain sales of agency mortgage-backed securities should have been recorded as secured borrowings rather than sales,” bank spokesman Jerry Dubrowski said. “The handful of transactions did not have a material impact on the company’s balance sheet or earnings. They need to be viewed in the context of our $2.3 trillion balance sheet.”

In April, the SEC asked Bank of America to disclose whether its transactions were intentionally mislabeled, and to prove that the trades were immaterial. The Charlotte, North Carolina- based bank said in an April 13 letter that it stopped the transactions after the first quarter of 2009, the SEC said.

The Bank of America transactions involved six so-called dollar-roll trades completed during 2007, 2008 and 2009. The amount of the trades represented 0.1 percent of total assets in the December 2008 quarter and improved the company’s Tier 1 capital leverage ratio by one basis point, or one-hundredth of a percentage point, during the September 2008 quarter, the bank said.

Bank Review

The bank said in its May 13 letter it did an “extensive review” of repurchase agreements and similar transactions and didn’t find more errors. The mistakes didn’t affect credit ratings or management compensation, hide any failure to meet analysts’ consensus estimates, “mask” other trends or put the bank out of compliance with loan and capital requirements, the bank said.

Bank of America was led by Chief Executive Officer Kenneth D. Lewis from 2001 through the end of 2009, when he retired and was succeeded by Brian Moynihan. In January, Moynihan moved Joe Price, the chief financial officer since January 2007, to run the company’s consumer banking unit. In May, the bank hired former Northrup Grumman Corp. executive Charles Noski as CFO.

The bank transferred mortgage-backed securities to a trading partner with the idea of receiving different securities later and classifying the deals as sales, the Wall Street Journal reported yesterday. The securities the bank received were similar to those it got rid of, meaning the transactions can’t be considered sales, the newspaper said.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net David Mildenberg in Charlotte at dmildenberg@bloomberg.net

14 Responses

  1. Does anyone else know the connection between CIG HFI and B of A?

  2. To Anonymous:

    I had a title search done through Neil and found out there is no loan out there with my name or address from Bank of America. No wonder I could find nothing under the SEC while searching.

    Any suggestions would be appreciated. Thank you.

    Cheryl

  3. thanks Dave K for your response. It is strange ,at best, how BofA states there is an investor tells me on the phone there is an investor of CIG HFI 1st lien mortgage and then indiscovery says, awe CIG is just a a department of BofA and the customer service people telling you your loan has an investor are just reading a screen and do not understand. something jsut does not add up. If they do own the loan, why have on the screen for customer service to represent the loan has an investor…it causes confusion on the borrowers behalf.

  4. OP …

    Due to the complex nature of the way these investments are structured and also due to the fact that some of them are now non-existent, the only way you are going to find out about where things stand is [and these are my suggestions and is not legal advice]: (1) have someone who knows how to use EDGAR through the SEC website and do securitization research investigate this further; but more effectively (2) to file suit for quiet title and get the action to the point where you get to have discovery utilized through an evidentiary hearing [as Neil has suggested]. It would be at that point (if BOA won’t give you this stuff via a QWR and DVL) then an attorney that knows this stuff can advise you of your options. I don’t recommend doing this stuff pro se/pro per. I’m working a case now against them that is purposefully becoming convoluted in an attempt to thwart discovery. They DO NOT want you finding this stuff out. Quiet title action in this case is in state court. Don’t let them remove it to federal; and they will try under diversity jurisdiction using all the same arguments as they do with everyone else and then motion for a 12(b)(6) dismissal.

    Examine all docs recorded at the courthouse. In every case I have worked, I have analyzed and discovered everything from recordation errors all the way to outright fraud in document preparation. Also, it may not be what is recorded at the courthouse that you stand to gain from, it’s what is NOT recorded, which is generally a perfection of their security interest.

  5. PJ

    How so?

  6. This explains a great deal for homeowners with “performing” loans..

  7. Dave Krieger and Usedkarguy ,,

    I love your writings along with Anonymous …

    These assett swaps are classic signs of fraud. If you read about the S&L crisis you will find that virtually all failed S&L’s partnered up with other S&L’s and swapped assetts between themselves to cook the books … The assetts they swapped were ones with no easily determined market value.. land .. shares in corporations that aren’t public , REO properties and such..

    This deserves much more than a “drive by” investigation ,, the bank examiners need gloves that go up to the elbow..

  8. Maher was right on this one from the start. TWO AND A HALF YEARS AGO!

  9. Neil,

    There’s nothing benign about this at all …

    They obviously are deviating from FASB 140-3 and they are about to get caught. They thought they could avoid capital gains taxes from “gain on sale” in “switching an apple pie for a peach pie” … claiming new assets purchased (which is a write off) … but unfortunately, they ended up with an apple pie, which effectively pits identical pools against each other in the swap scam, which triggers SEC investigations.

    That was a good write-up though on the force and effect of these transactions. It also tells any borrower trying to get discovery that uncovering the “side agreements” will expose deviations from 140-3, by whatever means (Repo 105s or whatever). None of this stuff is covered in the PSA or the Master Servicing Agreement. It’s all covered in side agreements that are now being investigated.

    The tough sell here is to equate what this means to a judge, as to why the pretender lender can’t negotiate a loan mod … THE LENDER IS NOT IN DIRECT CONTROL OF THE SECURITY, THE TRUSTEE IS. THE TRUSTEE CANNOT BE THE BENEFICIARY. IF THE TRUSTEE BECOMES THE BENEFICIARY OR VICE VERSA, UFTA KICKS IN AND LAWS HAVE BEEN VIOLATED!

    I have a case in California I worked on last night where a fraudulent reconveyance of property occurred. The lender named itself as Trustee. The lender also failed to mention MERS in the Reconveyance, because MERS was listed as the beneficiary in the Deed of Trust. That means that not ALL OF THE PARTIES were listed, so title was slandered, because someone got left out … MERS.

    Reason? The lender really doesn’t regard MERS as a beneficiary at all, which further waters down MERS’ argument that it has any fiduciary control or responsibility as a “nominee” whatsoever. This is why I drafted discovery that attacks the lenders position and viewpoints on MERS.

    If MERS reps are reading this blog … you guys are in for a bumpy ride because I’ve got you figured out and my discovery will end up in front of one of your subscribers at some point. When faced with criminal fraud charges, your agents and “assistant secretaries” will rat you out on the stand and you will be held criminally liable for unlawful conversion. Take notice.

  10. TO THE JUDGES IN THE UNITED STATES HITLER WOULD BE PROUD.

    ESPECIALLY WHEN HE SEES THE NAME DEUTSCHE BANK IS BEHIND MOST OF THE ILLEGAL FORECLOSURES.

    THE BANKS AND THE JUDGES SUPPORTING THEM ARE TRUE ECONOMIC GENOCIDAL PSYCHOPATHS
    AND NOW MASS MURDERERS OF ANIMALS. HUMANS ARE NEXT.

    LOOK AT WHAT THEY ARE ALLOWING BRITISH PETROLEUM TO GET AWAY WITH?

    http://www.latimes.com/news/nationworld/nation/la-na-fish-sniffers-20100713,0,2074283.story

    NOW YOU ASK WHY AM I MENTIONING BRITISH PETROLEUM? BECAUSE IT IS THE SAME BEHAVIORAL PATTERN BY THE JUDGES IN THE UNITED STATES THAT STARTED WITH THE BANKS.

    OBAMA ADMINISTRATION ASKED TO HAVE THE DRILLING STOPPED AND THE JUDGES (WHO HAVE PENSION FUNDS WITH BP AND THE BIG BANKS) ALLOW THE DRILLING TO CONTINUE.

    HITLER WOULD BE PROUD OF YOU GREAT JUDGES.

    THEY START WITH OUR HOUSES AND INVESTMENT EMPLOYMENT AND NOW OUR FOOD CHAIN. I SEE NO DIFFERENCE BETWEEN THE BANKS AND BRITISH PETROLEUM.

    BEWARE WHEN THEY START OFFERING US JOBS AT THESE NEW CAMPS THEY ARE BUILDING AND DONT GO INTO THE SHOWERS (GAS CHAMBERS).

    JUDGES WHO ARE PSYCHOPATH ON ECONOMIC GENOCIDAL PROPORTION ARE NOW BECOMING HOMOCIDAL MASS MURDERERS OF ANIMALS AND NOW OUR FOOD CHAIN.

    Be strong and Courageous like Neil Garfield and Co who are fighting the forces of darkness and evil.

    God Bless America

  11. The coverup continues while this government participates in the usurious scheme.
    *** Be a patriot – Demand Accountability ***

  12. The “error” was they got caught…

  13. CIG HFI 1st Lien Mortgage- BofA has told me tthis is my investor and also told me BofA owns the loan. They say CIG is a department aof BofA nd controls a portfolio of loans and my loan is in this portfolio. BofA says they own my loan in writing, but on the phone BofA says CIG HFI ist Lien Mortgage is the Invesotor
    CIG (corporate investment group) HFI (held for investment) Anyone with any info would be very helpful. BofA may hold my loan, but they may have sold the income strema to this porrtfolio. ANY IDEAS LIVINGLIES READERS?

  14. But of course……………..

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