Turn On The Lights, Watch The Roaches Scatter, Part 47

Tyler Durden notes today's Foreclosuregate proceedings, where Moody's may have just ruined Bank of America's day.

Two weeks ago, the New York Times's Gretchen Morgensen wrote an article in which she touched upon the curious case of Kemp vs. Countrywide Home Loans in which Countrywide held on to the original mortgage note and related docs "even though the pooling and servicing agreement governing the mortgage pool that supposedly held the note required that it be delivered to the trustee, the court document shows" thereby impairing the integrity and validity of all downstream securities.

Prior to this (and since) we have seen many more cases in which there was outright court fraud in some capacity, either w/r/t the PSA or the already well known issue of robosigning. It is no surprise that after making a splash, this topic has disappeared from the mainstream media, as banks are doing all they can to "silence" the debate, whose implications could be terminal for the US leveraged housing paradigm, which has existed since the advent of the GSEs.

Yet, surprisingly, in today's Weekly Credit Outlook, Moody's brings new attention to this particular case, and adds some language that if one were the CEO of Bank of America, one would be very, very nervous, more so than even how damaging the revelations from the Wikileaks disclosure on BofA may end up being. To wit: "We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS." 

Translation: Countrywide/BoA tried to have their cake and eat it too, keeping the mortgage note AND saying "yeah, we turned it into the trust to have it securitized."  Problem is doing both at the same time is securities fraud.  Who knows how many of those Countrywide mortgages that BoA picked up are in two places at once?

Going to be very expensive for BoA to resolve, enough so that Moody's is commenting on it.  Could get really interesting.