Countrywide Failure Aftershock

Oh, no--it's not over yet. Not by a long shot.

"Dec. 1 (Bloomberg) -- Countrywide Financial Corp., the home lender acquired by Bank of America Corp., was sued by Greenwich Financial Services Fund over claims an agreement to reduce payments on mortgages by $8.4 billion would hurt investors.

The hedge fund claims investors will be harmed by Bank of America’s settlement, reached on behalf of Countrywide, with 15 state attorneys general. The value of trusts that bought 400,000 mortgages will decline under the deal, the fund said."

Heh. Bank of America buys Countrywide and settles with the Feds by screwing people who bought Countrywide's bundled mortgages.

The screwees are not pleased.

Figure another $8.4Bn gets tossed onto the taxpayers' backs, eventually.

Comments MT:

I'll bet this gets legs, and will derail not only this "modification" gambit but anything similar, until and unless the banks involved figure out how to pay down the investors on their own, thereby covering what would otherwise be their losses.

(It should be that way too - the investors didn't make the bad loans; if they're going to take losses it should be through outright defaults, not through forced cramdowns that benefit the banks but screw the bondholders!)

On the other hand, this may explain the "investments" made by the Treasury in preferred stock of various "healthy" Banks. That money will have to be reserved against lawsuit-losses...

HT: The Market Ticker