Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Who Cares About Put-Backs? All the Reflationistas, That’s Who.

Who Cares About Put-Backs? All the Reflationistas, That’s Who.

Courtesy of Joshua M Brown, The Reformed Broker 

The mortgage fraud cost estimates for banks are a bit like QB Ryan Leaf - all over the place and without any accuracy whatsoever.

We’re hearing estimates of anywhere from a few hundred million bucks to as much as $200 billion! And in the meantime, Bank of America ($BAC) is telling us that they’ve found nothing wrong in their foreclosure process and that after halting all activity in 50 states, they are now back in business in half the country.

There are currently 7 million foreclosures in the housing market that need to be worked through and any delay will be costly for large lenders like B of A.

Should the states or the courts decide that many of these securitized mortgage-backed bonds are structured fraudulently (no one knows which mortgage is owned by whom), there is a possibility that the banks may have to buy them back due to a clause on most of this paper called the Put-Back.

In the absence of anything even resembling a consensus on how big the costs of mortgage put-backs may be, the temptation is to simply say, Who Cares?  Well, I’ll tell you who cares…

For starters, how about hedge fund manager John Paulson?  With a stake in Bank of America of 167 million shares, Mr. Paulson has about 2 billion reasons to care about how big their put-back exposure is.

Mutual fund monster Bruce Berkowitz (Fairholme) has about 667 million reasons to give a damn (54 million shares held).

Hedgie David Tepper of Appaloosa Management, no slouch himself in the "reflation trade", has about 337 million reasons to care (27 million shares).

These three investors make up the Triumvirate of the Reflationista Trade.  These are the ultimate Don’t-Fight-The-Fed-ers.

That they are all in the same trade, BAC, is not a surprise – it is the quintessential call option on housing and employment. But they may not have bargained for the foreclosure mess that has hit the media with the gale-force wind of 2007′s sub-prime storm. Whether or not this particular storm blows over – or spills over – is very much of interest to Paulson, Berkowitz and Tepper, make no mistake.


Tags: , , , , , ,

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!