How Bank of America Corp (BAC) Defrauded America

Page 1 of 2

Did Bank of America Corp (NYSE:BAC) enrich itself by defrauding potentially millions of homeowners who requested loan modifications under the 2009 Home Affordable Modification Program, or HAMP? Yes, or at least that’s what six of its former employees are claiming in a class action lawsuit being waged in a Massachusetts federal court. But while the allegations are stunning and disappointing, I’m sad to say that they aren’t surprising.

Bank of America Corp (NYSE:BAC)

When President Obama announced HAMP in a speech on Feb. 18, 2009, he said its purpose was to “create new incentives so that lenders work with borrowers to modify the terms of subprime loans at risk of default and foreclosure.” While subprime loans made up only 12% of mortgages at the time, they accounted for roughly half of all foreclosures.

In Obama’s words:

Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but rarely finding answers. Some subprime lenders are willing to renegotiate; many aren’t. Your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day you call.

My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines — which will be in place two weeks from today.

If lenders and homebuyers work together, and the lender agrees to offer rates that the borrower can afford, we’ll make up part of the gap between what the old payments were and what the new payments will be. And under this plan, lenders who participate will be required to reduce those payments to no more than 31% of a borrower’s income. This will enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.

The reality, as we soon came to find out, was that HAMP wasn’t passed with the intention of helping homeowners, but rather to serve as an additional backdoor bailout for the banking industry. Neil Barofsky, the former special inspector general in charge of the oversight of TARP, discussed this point in his book Bailout. Recounting a conversation he and Elizabeth Warren had with then-Treasury Secretary Tim Geithner, Barofsky noted (emphasis added):

Geithner apparently looked at HAMP as an aid to the banks, keeping the full flesh of foreclosures from hitting the financial system all at the same time. Though they could handle up to “10 million foreclosures” over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts. So HAMP would “foam the runway” by stretching out the foreclosures, giving the banks more time to absorb the losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!