Representative Darrell Issa (R-CA), has requested information
from the Federal Housing Finance Agency on what he said might be a “back-door
bailout” of Bank of America (BofA). The request came in a letter dated September
15 questioning Fannie Mae’s reported purchase of the servicing rights for a large
portfolio of loans from the bank. Issa,
Chairman of the Committee of Oversight and Government reform wrote in response
to an article in The Wall Street Journal which
alleges that the Fannie Mae had bought rights to a pool of 400,000 residential
mortgages with an unpaid principal balance of $73 billion. The purchase price was said to be $500,000. According to information from an RSS feed out
of Issa’s office, the letter signals the opening of an investigation into the
As quoted by Issa, the August 10 Journal article
said that the sale was part of BofA’s “strategy to sell noncore holdings, rid
itself of mortgage problems, and preserve capital as it repositions its balance
sheet to withstand future economic shocks.”
The paper, quoted an unnamed source familiar with the deal who said the
bank sold the portfolio at a loss because its value is expected to deteriorate
further. The loans, over half of which
are in troubled markets, have a current delinquency rate of 13 percent.
Issa cited past and on-going federal support to Fannie Mae since
it was put into federal conservatorship under FHFA in August 2008, including
$150 billion from the Treasury and a Federal Reserve Board commitment to
purchase $1.25 trillion in mortgage backed securities (MBS) from Fannie Mae and
Freddie Mac. Issa said that FHFA was
created to guarantee that Fannie Mae operate in a safe and sound manner and
have the financial strength and operational capacity to fulfill its role in the
nation’s housing finance system which requires minimizing credit losses from
The purchase is worrisome, Issa said, both because Fannie Mae
does not service mortgages and because the transaction appears to have shifted
a significant amount of risk from BofA to Fannie Mae. In addition BofA recently announced it would
cut at least 3,500 jobs in the next few months.
The purchase, Issa said, gives the bank additional liquidity and allows it
to shed severely distressed assets. “Some
commentators,” Issa stated, “have labeled this transaction as a back-door
bailout of BofA by permitting the bank to shift part of its risky portfolio to
the American taxpayers.”
Issa is requiring FHFA to furnish information on the
following lines of inquiry by September 29, 2011.
A full explanation of FHFA’s
decision to allow the purchase to take place including all documents and
communications between FHFA and Fannie Mae relating to the decision.
Full details regarding Fannie’s
evaluation of the portfolio including all documents and communications between
Fannie Mae and BofA.
Whether Fannie Mae took into
account the risk of further degradation of the portfolio, and on what basis it
determined to expand its portfolio given its conservatorship status and ongoing
need for taxpayer funding.
Whether Fannie Mae or Freddie Mac
have considered or are considering the purchase of additional servicing rights
from BofA or other financial institutions. Does Fannie plan to sell these servicing
rights and if so to whom and when?
- Were there other bidders for the portfolio?
Were any of the loans in the
portfolio among those that Fannie Mae and Freddie Mac transferred to BofA on
January 3, 2011
What communications passed among
FHFA and other federal agencies or departments regarding the purchase?
In response to our request for a statement a spokesman for the FHFA said, “We have received the Congressman’s letter and will respond soon.