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SMALL BUSINESS
BofA to Disclose Merrill Deal Details
AP
CHARLOTTE, North Carolina (Oct. 13) - Bank of America Corp., giving up a months-long fight with regulators, plans to turn over documents revealing legal advice it received on its purchase of Merrill Lynch.
In a turnabout, the bank will waive attorney-client privilege that kept it from telling regulators about recommendations it received from outside attorneys over whether to disclose details to shareholders about Merrill's mounting troubles.
On Tuesday, Bank of America spokesman Larry DiRita said, "Given the pressure in multiple inquiries to provide additional insight, we've decided to waive it in this matter to get the issue behind us."
"We've got nothing to hide and are certain we did everything proper in the context of the Merrill acquisition," he added.
Charlotte, N.C.-based Bank of America has agreed to waive privilege for investigations by the New York attorney general's office, the Securities and Exchange Commission and a congressional committee, a person familiar with the bank's agreement said. The person spoke on condition of anonymity because the information wasn't publicly disclosed.
The bank's change of heart comes nearly two weeks after it announced that CEO Ken Lewis planned to retire by the end of the year. It is believed that the legal battles that followed the Merrill deal contributed to Lewis' decision to leave.
New York Attorney General Andrew Cuomo's office is seeking to determine whether Bank of America misled shareholders about $3.6 billion in bonuses paid to Merrill employees and the investment bank's mortgage lending losses, as well as whether the company failed to tell shareholders that it considered backing out of the deal before it closed on Jan. 1.
The attorney general's office and a federal judge overseeing the SEC case have questioned whether the bank knowingly hid details about the acquisition from shareholders ahead of a vote to approve the deal. Until now, the bank had declined to provide details on legal advice it received on its disclosures to shareholders.
But in a letter to Cuomo obtained by The Associated Press, Bank of America said that following a "very constructive" meeting Oct. 6 between the bank and the attorney general's office, it "reconsidered its position" with regard to waiving privilege, "in the hope of furthering a resolution."
In its letter to the AG's office, Bank of America said it will waive privilege with respect to communications about what bonus-related disclosures would be made in, or omitted from, the joint proxy statement issued by Bank of America and Merrill on Nov. 3, 2008, in connection with their merger. It will also waive privilege regarding Bank of America's consideration about whether to back out of the deal under a material adverse change clause, and the disclosure or nondisclosure of Merrill's 2008 fourth-quarter financial performance and potential goodwill impairment charges before the acquisition's Jan. 1 closing.
Lastly, Bank of America said in the letter it will waive privilege related to its communications with the Federal Reserve, the Treasury Department and other government officials regarding federal aid in connection with the Merrill Lynch takeover.
Lewis has said he was pressured by the Treasury and Fed to complete the purchase.
Bank of America agreed to acquire Merrill Lynch in a hastily arranged deal in September 2008, at the height of the financial crisis, just as Lehman Brothers was preparing to file for bankruptcy.
—
Bernard reported from New York.
Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
2009-10-12 19:35:05
COMMENTS ( 12 )
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BACKGROUND
Mortgage-backed securities (MBSs) are simply shares of a home loan sold to investors. They work like this: A bank lends a borrower the money to buy a house and collects monthly payments on the loan. This loan and a number of others -- perhaps hundreds -- are sold to a larger bank that packages the loans together into a mortgage-backed security. The larger bank then issues shares of this security, called tranches (French for "slices"), to investors who buy them and ultimately collect the dividends in the form of the monthly mortgage payments. These tranches can be further repackaged and sold again as other securities, called collateralized debt obligations (CDOs). Home loans in 2008 were so divided and spread across the financial spectrum, it was entirely possible a given homeowner could unwittingly own shares in his or her own mortgage.
Eventually, the most desirable, qualified customers dried up; they all had homes. So banks turned to customers they'd traditionally shunned -- subprime borrowers. These are borrowers with low credit ratings who pose a high risk of defaulting on their loan. But lenders of all stripes bent over backwards in the early 2000s to get this type of borrower into homes. The no-document loan was created, a type of loan for which the lender didn't ask for any information and the borrower didn't offer it. People who may have been unemployed as far as the lender knew received loans for hundreds of thousands of dollars. Why?
One answer is that, with the introduction of MBSs, lenders no longer assumed the risk of a loan default. They simply issued the loan and promptly sold it to others who ultimately took the risk if payments stopped. And since MBSs created early on were based on mortgages granted to the more dependable prime borrowers, the securities performed well. They performed so well that investors clamored for more. In response, lenders loosened their restrictions for mortgage applicants and borrowed heavily to create cash flow for loans in order to create more mortgages. Without mortgages, after all, there are no mortgage-backed securities.
THE QUESTION
As mortgages were packaged/bundled into mortgage back securities (MBS) and sold to investors and since these MBSs were bought by investors, with some mortgages being split and owned by several institutions or people (tranches), how can the homeowner/borrower know who actually owns their mortgage? If the homeowner /borrower does not know who actually owns their mortgage, then how does the foreclosure court know who actually owns the mortgage and CAN actually proceed with the foreclosure?
The real estate attorneys representing these possible foreclosed homeowners should request that the foreclosing institution show that they ACTUALLY own the mortgage and can bring foreclosure action to court and are not just the mortgage servicer.