The Wall Street Journal reported something curious this morning:
Bank of America Corp. has agreed to sell part of its home-loan portfolio to government-controlled housing giant Fannie Mae, as the bank looks to shed assets and pare its exposure to an array of mortgage woes. The deal, finalized last Friday, will deliver the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73 billion, people familiar with the deal said. The purchase price is more than $500 million, one of these people said.
I didn't get around to reading this article until the end of the day, but in looking around perhaps no one else did either—does this deal not smell to anyone else?
Naturally more details will probably emerge in the next few days (assuming a sane world, which we don't have, so I guess that is anyone's guess), but there a few questions that jump out from this article.
First, why is the purchase price not known... along with all the details on this transaction. FHFA is the conservator of Fannie, which means we taxpayers are basically the shareholders, so there should be full transparency on this.
Second, why is Fannie buying MSRs? This doesn't add to their portfolio since they probably already own the loans, they are just buying the rights to process the cashflow, but it still isn't clear why they'd be getting into this business. If this is profitable I'd imagine Treasury would want a private sector firm to buy the rights and make the money. Of course if this is a really crappy portfolio of loans underneath the MSRs perhaps no on in the private sector wanted them—and naturally that suggests Fannie shouldn't want them either.
Third, why was there no bidding war for these MSRs? Seems that BofA could have fielded several private sector bids for their MSR portfolio here, but they just sold this straight to Fannie (unless the reports don't have the whole story). That would suggest either Fannie offered more than anyone else might have offered in BofA's opinion, or BofA knew no private sector actor wanted to get in on this mess. The first suggests Fannie out bidding the private sector and government treading on the private sector space even more. The second suggests a bailout.
In fact, the lack of transparency smells completely of a bailout. Bank of America is in trouble right now. It is under heavy pressure to unload risk. And the government has all the incentives to see the bank survive. So theoretically this could be a backdoor bailout of Treasury taking losses of bank books and using Fannie as the vehicle.
Then again, something else could be at play here, but until there are some answers I stand suspicious.
See the whole WSJ piece here.