Bank of America's back-door TARP: Fannie Mae paid $500 million for deteriorating portfolio of loans

[Karmadillo]

http://finance.fortune.cnn.com/2011/08/10/bank-of-americas-back-door-tarp/

Taxpayer-owned Fannie Mae just bought the servicing rights to a bunch of bad loans from the struggling Bank of America. Where does it end?

By Abigail Field, contributor

FORTUNE -- Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.

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According to the WSJ, Fannie Mae spent $500 million to buy the servicing rights to a big chunk of the "seven million loans still causing the most problems." Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."

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Fannie Mae is purchasing "the servicing rights in order to transfer the day-to-day management of those loans to a different company." That's another huge sign that Fannie Mae is overpaying. If the rights were really worth $500 million, wouldn't a private company pay that for them? Instead, it sounds like Fannie Mae is doing a bailout two-step, one to BofA and one to whomever takes these rights off Fannie Mae's hands.

Another thing needs to become clear: where did Fannie Mae get the money to do BofA the favor of buying these rights? Fannie Mae just asked for another bailout of its own, seeking a new $5.1 billion infusion last week.

more...

[sakabatou]

1. *sigh*

[dkf]

2. Too big to fail redux. Worrisome.

[Karmadillo]

3. For some things, funds are apparently unlimited.

nt