Bank of America CEO Brian Moynihan is pushing back against a government proposal that would force his company to assume responsibility for billions of dollars in mortgage debt, according to The New York Times.
The proposal would encourage financially-troubled homeowners to default, Bank of America argues, leaving the bank -- and those homeowners that have not fallen behind -- to pick up the tab.
"There's a core problem that if you start to help certain people and don't help other people," Moynihan said at an investor's event yesterday, according to the NYT. "It's going to be very hard to explain the difference."
Terry Laughlin, who oversees Bank of America's Legacy Asset Servicing unit, agreed at the same event that the proposal is unfair. "What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?" he asks.
Facing investor lawsuits and the potential cost of a larger mortgage settlement, Bank of America announced that it will create a "good bank, bad bank structure" that quarantines its worst "legacy" loans. The separation will allow healthy mortgages to be promoted alone.
How many mortgages would get tossed into the "bad bank" structure under the proposal? Estimates predict around half of the bank's 13.9 million mortgages.
Bad mortgages include delinquent loans, along with defaulted and suspect mortgages, including Alt-A, interest-only, adjustable-rate and the now-infamous subprime loans. Altogether, the bad mortgages total to $1 trillion in outstanding principal balance, the company said yesterday.
Bank of America is scrambling after the nation's five largest home loan firms -- Bank of America, Wells Fargo, JPMorgan, Ally Financial Inc. and Citigroup Inc. -- received a 27-page document detailing the broad parameters of a possible settlement. The document was compiled by broad coalition comprised of, among others, the Treasury, Federal Trade Commission, Bureau of Consumer Financial Protection, and all 50 attorney general.
The settlement proposes a restructuring of the oft-abused foreclosure process. It also suggests banks come to the financial aid of "underwater" mortgages. The cost that would be imposed on the financial industry has been estimated at $20 billion, according to The New York Times.
With three out of every four Bank of America loans already passed onto other investors, the company is no longer liable for the large number of mortgages originating from its services. Still, Bank of America says it is doing its part to clean up the mess, alleging that, in the past three years, the company has modified as many as 800,000 mortgages.
Since replacing Ken Lewis in December 2009, CEO Brian Moynihan has been on a crusade to put the company's darkest days behind them. Last year, Bank of America lost $2.2 billion overall, a product in part of Moynihan writing off large amount of costs.