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Bank of America settlement might just be Step One

By: News
Posted: 1/4/2011 11:08:00 AM
Referenced Stocks:

The news that Bank of America settled obligations regarding mortgage-backed assets with the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association - better known as Freddie Mac and Fannie Mae - helped boost the bank's stock price more than 6 percent on Monday. Though it cost the Charlotte, North Carolina bank $3 billion, the settlement will protect the company from further claims from the government-sponsored enterprises, or GSEs.

It would seem, then, that the bank escaped from having to pay out potentially crippling putbacks or damages for selling assets backed with these subpar mortgages. But threats remain on the horizon.

For one, the government doesn't have any desire to mortally wound Bank of America, and though the GSEs are nominally independent, they can be influenced by political pressure. Fannie Mae and Freddie Mac were never going to go on the warpath against the largest bank holding company in the United States.

Private investors, like PIMCO and founders Bill Gross and Mohammed el-Erian, may not be so forgiving. Bank of America sold about $750 billion of mortgage-backed assets to firms like PIMCO and BlackRock, and some believe that putbacks in those arenas could reach anywhere from $9 billion to $85 billion over the next few years.

There's a wild card, too - Julian Assange, the embattled head of the Wikileaks organization, has all but said that he will release a major leak detailing some controversial internal dealings at Bank of America. No one but the leakers themselves know what the rumored hard drive will contain - and it's that uncertainty that has a special unit in Charlotte working day and night to figure out what the extent of the bank's exposure could be.