onyx1

The reserves between GSE's and non-GSE are not comparable for many reasons, but the biggest one is that the GSE reserves currently reflect the fact that a very large portion of the GSE R&W liabiliity has been settled and paid. Not so with the non-GSE's since the NY court has not confirmed the BNY-Mellon agreement yet and reserves are still held until that happens. Specifically, the GSEs have settled with BAC for: 1) FMCC, all CFC originated loans through 2008 2) FNMA, all CFC loans that were in the pipeline as of 9/20/2010 With CFC representing 76% of BAC's GSE originations the settlement with FMCC is significant. The FNMA settlement leaves them some wiggle room. GSE risk remaining are BAC/ML originated loans with FMCC, and all CFC/BAC/ML loan claims made after 9/20/2010 with FNMA. It's not a big suprise that FNMA is now expanding their threshold for claims since they settle based on pipeline contents on a specific date. FMCC can't do the same since they settled on all CFC loans based on origination dates, but they can get expansive with BAC/ML loans. The only breakout of the R&W liability I can find is on page 209 of the 10-K where they discuss $8.6 for BNY-Mellon, and $7.0 for everything else.

do you have a reference for that reserve information (e.g., in the current 10-k)? I just started on it and the section ~page 90 didn't seem very clear about what was reserved and what was not for GSE. See pages 55-62 and page 125 of the recent BAC 10-k

Actually, the $5b estimate is for non-GSE claims. The vast majority of the repurchase requests are from the GSEs -- the percentage is stated on page 34 of the 4Q11 earnings presentation. From the 4Q11 earnings presentatio, page 34 "Estimated range of possible loss related to non-GSE representations and warranties exposure could be up to $5B over existing accruals at December 31, 2011" Yes, I'm more worried about the GSE reserves. I think they typically say they can't estimate it well so haven't fully reserved, which is worrisome to me. However, I still think the discount more than makes up for it. Just to be clear, GSE R&W liabilities are fully reserved based on actual experience, including the precedents gained from recent settlements with FNMA and FHLMC. This liability includes current as well as expected future claims, but is based on historical GSE behavior. What keeps BAC from estimating a range of possible loss (comparable to the $5mm in non-GSE RPL) is that the GSEs have recently changed their behavior and are now claiming loans that were formerly ignored. One example, the GSE's are now making claims on loans that have made 25 or more payments when for years they drew the line at 25. BAC has been rejecting these incremental claims on account of bad logic and the GSE's inconsistency with past behavior. When a loan is rejected, it stays in the reported amount of 'claims outstanding' until both the GSE and BAC agree that it is resolved, so we should expect to see 'outstanding claims' from the GSE continue to grow until a agreement is reached. I have no idea how this one will be decided, but with BAC halting loan sales to FNMA due to this changed behavior, it looks like to me like BAC is digging in for a long fight if necessary. BAC has $5.4bln in face amount of loans currently waiting for resolution for R&W claims with FNMA. Here is FNMA's take (from their Feb 2012 10-K): "In the fourth quarter of 2011, Bank of America, the seller/servicer with which we have the most repurchase requests outstanding, slowed the pace of its repurchases. As a result of Bank of America’s failure to honor its contractual obligations in a timely manner, the already high volume of our outstanding repurchase requests with Bank of America increased substantially. Measured by unpaid principal balance, Bank of America accounted for approximately 52% of our total outstanding repurchase requests as of December 31, 2011, compared with 45% as of September 30, 2011 and 41% as of December 31, 2010, shortly after entering into an agreement with us to address its then-outstanding repurchase requests. Similarly, Bank of America accounted for 59% of our repurchase requests that had been outstanding for more than 120 days as of December 31, 2011, compared with 48% as of September 30, 2011 and 37% as of December 31, 2010. We are taking steps to address Bank of America’s delays in honoring our repurchase requests. For example, we did not renew our existing loan delivery contract with Bank of America at the end of January, which significantly restricted the types of loans it can deliver to us."

At the start of 2008, an investor buying protection on Greek debt had to pay only $22,000 annually to insure against default on $10 million of Greek bonds over five years, according to Markit, a data provider. Now, the protection would cost about $7.6 million. http://dealbook.nytimes.com/2012/03/09/greek-credit-default-swaps-are-activated/

'With a heavy accent, Belinda, now 75, recounts how she constantly reminded her boys to "work hard and never give up." ' LOL, in this regard she taught Richard well!

??? What relevancy does that have? Berkshire does not post collateral daily to its shareholders. None, I wasn't responding to your point about BRK. I was responding to your misguided assertion that a CDS contract offering default protection on a name with the same counterparty has no fundamental value. well, i wouldn't say that was "misguided." may be the case now that contracts are mark-to-market with collateral; pre-2007 that wasn't necessarily the case for most contracts. Sorry if I am belaboring the point, but CDS contracts and other OTC derivatives are executed through the broker dealer community and governed by master ISDA agreements that require daily MTM and posting of collateral. This has been standard market practice since the 1980's. Prior to 2007 though, many of the largest dealers in space operated without mark-to-market, unless certain downgrades occurred. This is what killed ACA, what almost killed AIG, and many others. Further, CDPC or Monoline providing credit protection on LSS's (which often included themselves within underlying baskets) did not post a dime of collateral. There is a confusion of terms here. ACA, AIG, MBIA are not dealers. Dealers are market-to-market institutions, like GS, ML, DB, UBS, CS, MS. They are governed by agreements where collateral is posted daily. They have been operating as such for decades with standard ISDA master agreements. Because of the requirement to post collateral, you can safely buy default protection on GS from GS. There is fundamental value in this type of contract. Insurance companies like ACA, AIG, MBIA, FGIC, FSA provided third-party guarantees of structured transactions (sometimes with their own credit as a line item risk). Prior to the crisis, the market relied on the soundness of their ratings and reserves and did not require upfront cash collateral. There is no standardized master agreement in these negotiated transactions for the posting of collateral in the event of credit deterioration of the insurance company’s credit, so no one can generalize. Prior to 2007, I saw many of these transactions. Most had ratings triggers. For those that did not and at the same time provided default protection on their own corporate credit (insurance payables receive priority) then I agree the circular nature does damage the value of these contracts.

this publicity is going to boost RL ratings. And he will replace that advertising. In fact wait 6 months when this blows over and many will be back. One advertiser, Carbonite (CARB) , is down 9.5% since Mondays's withdraw of their radio ads to "ultimately contribute to a more civilized public discourse.” Lets see how long this interest in civility lasts in the face of falling revenues. http://dailycaller.com/2012/03/06/investors-flee-carbonite-after-limbaugh-announcement/#ixzz1oPzzWTUi Note to CEO's: Inserting your company into a heated political debate is destructive to shareholders and a no_win situation!

??? What relevancy does that have? Berkshire does not post collateral daily to its shareholders. None, I wasn't responding to your point about BRK. I was responding to your misguided assertion that a CDS contract offering default protection on a name with the same counterparty has no fundamental value. well, i wouldn't say that was "misguided." may be the case now that contracts are mark-to-market with collateral; pre-2007 that wasn't necessarily the case for most contracts. Sorry if I am belaboring the point, but CDS contracts and other OTC derivatives are executed through the broker dealer community and governed by master ISDA agreements that require daily MTM and posting of collateral. This has been standard market practice since the 1980's.

Whew! Looks like radio isn't the only place one can find over-the-top generalizations.

??? What relevancy does that have? Berkshire does not post collateral daily to its shareholders. None, I wasn't responding to your point about BRK. I was responding to your misguided assertion that a CDS contract offering default protection on a name with the same counterparty has no fundamental value.

So Goldman could offer default protection on itself and collect riskless profit? Not in practice. The only way this would work is a jump-to-default (overnight credit event) with no recovery. The market prices in an extremely low probability of this happening to a diversified firm without correlated risk. These contracts do have fundamental value and they are frequently traded as such because collateral is posted daily and the contracts are liquid enough to be assigned to many other counterparties.

Also, of these $400bln, $94bln are without credit risk as they are FHA loans which carry a full government guaranteed. (See page 84 10-K)

I leiu of a Range of Possible Loss figure for the GSE R&W exposure, BAC now gives a sensitivity to home prices: Page 125 10-K: "Viewed from the perspective of home prices, for each one percent change in home prices, the liability for representations and warranties on unsettled GSE originations is estimated to be impacted by $125 million based on projected collateral losses and defect rates. " This would imply an additional $2.5bln loss if prices decline by 20%.

Well, the Clinton/Monica thing was also perfectly legal. Eric, You have made many insightful and brilliant posts, but this is not one of them. Despite his spin doctors relentless attempts to make it "all about sex", Clinton lied to a grand jury in a sexual harassment lawsuit brought on by a private citizen. Not legal. He was subsequently disbarred for having done so.

Grats to all longs. Went 98% long in August. +31% since Oct 1, and +16% ytd. Helped by good moves in MSFT 17.5 LEAPS, BAC, WFC, WRB, BRK, and a handful of special situations some of which are working out very, very well. I'm enjoying the moment, but not too much as market emotions can change in a day.

::) Here it comes! In 2012, I expect that PE firms and those employed by them will win the top spot on the "public enemies of the USA" list. Previous winners include: Health Insurance companies Oil companies Bank of America Goldman Sachs Wal-Mart Rich people S&P Corporate jet owners Koch brothers Did I miss anyone?

Profoundly inspirational. Thank you for posting this. A great man who leads by example alone. It is interesting to me that his only misstep was when he stepped into an area that involved politics, but he recognized it and quickly closed down that chapter.

I feel the same. It's is hard to watch a man who I hold in such high regard voluntarily allow himself (and others who work for him) to be used as a political pawns. The cheapening of his legacy is heartbreaking to watch. I never expected perfection from him. Someday, I will likely see this as a minor hiccup in the context of a superlative life, but today I see it as simply unnecessary. The fact that he is giving away almost all his wealth (while politely encouraging others to do the same) speaks loud enough about his views on the inequities in society.

Agreed. He entered a grey area where a reasonable case can be made either way. His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1. He should have known better and as his public profile increases he will get less of the benefit of the doubt. As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed. Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today. That's no free pass. It's the reasonable man test that applies. It's better to avoid any questions about market sensitive topics. Then, if something material to trading should be revealed anyway, don't trade on it. If something material reinforces a trading strategy in progress, cancel future trades until the news becomes public. Point taken, thanks all.

Agreed. He entered a grey area where a reasonable case can be made either way. His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1. He should have known better and as his public profile increases he will get less of the benefit of the doubt. As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed. Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today. I disagree if he had asked that question he wouldn't be in trouble today. The insider himself does not determine whether the information is material and non-public. It could perhaps give one some guidance, but isn't legal protection in my view. But I could be wrong. Its likely not protection, but by bringing the issue to the open all of the "he-said-she-said" claims are minimized, and disipline is imposed on both sides of the conversation. It keeps one from acting alone and pointing fingers later. In this case if Punch said yes, Einhorn would not have traded. If Punch said no, but was later found to have passed material information, then Einhorn would not appear as culpable as he is today (or even better use the answer as a reminder to use his moral compass and stay away from a potentially bad situation).

Agreed. He entered a grey area where a reasonable case can be made either way. His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1. He should have known better and as his public profile increases he will get less of the benefit of the doubt. As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed. Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today.

Really? http://www.dailymail.co.uk/news/article-2092021/Australian-PM-dragged-safety-crowd-aborigines-protesters-ambushed-restaurant.html

Wow, that was funny. Priceless exposure. Congrats to Sardar on your marketing coup!

In America, mob violence has never really gained traction in advancing causes. Peaceful demonstrations are typically much more effective. Desite breathless cheerleading on the part of many in the media, the OWS protests lost credibility with the populace when violence ensued. The opposite occured with the non-violent tea party protests.

I like Bing too, but one thing Google search offers is the ability to sort search results by date (e.g. most recent first). How is it that Bing cannot offer something so apparently simple?