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Behind Bank of America's Toxic Assets, Subprime Links Obscured But Continued

Byline: Matthew R. Lee of Inner City Press on Wall Street: News Analysis

NEW YORK, January 21 -- Bank of America is now headed down a Citigroup-like path.  A second serving of TARP bailout funds, government insurance for a widening range of toxic assets, a chief executive on the ropes. While Ken Lewis claimed to have gotten BofA out of the world of subprime, its investment banking arm continued to buy and trade subprime mortgages, and to prop up subprime lenders. Now Lewis implies that the $108 billion in toxic assets being insured by the government came from Merrill Lynch. But a quarter of them come from BofA itself.

    As reported by Inner City Press, Bronx-based Fair Finance Watch documented this to the Federal Reserve in Communiuty Reinvestmeent Act comments filed in opposition to Bank of America's applications for regulatory approval to merge and expand. In its responses to FFW's comments, BofA begrudgingly acknowledged that it did business with, among others:

Ameriquest Mortgage Corporation, since defunct; Saxon, through which Morgan Stanley tells FFW it has stopped lending, Option One, Centex, New Century, bankrupt; Metris (a subprime card lender HSBC later acquired), Delta Financial, First Franklin, WMC (subprime lender owned by GE), Fremont Investment & Loan, rogue subprime lender which told FFW it would only give its Home Mortgage Disclosure Act data if one signed a confidentiality agreement), Capital One, CIT, WFS -- and Ownit, regarding which Bank of America blacked-out a column labeled "ABS/MBS Underwriting," after elsewhere publicly admitting it performs those functions for Ownit’s loans.

In Charlotte, vertigo, BofA's subprime connections not shown

 BofA wrote:

"Bank of America indirectly owns 24.9% of the voting common equity of Ownit... In August 2005, Bank of America, N.A. transferred the Ownit residential mortgage loan portfolio purchased during March 2005 to Asset Backed Funding Corporation (‘ABFC’). ABFC is an affiliate of Bank of America Corporation that is a limited purpose corporation that securitizes residential mortgage loans... ABFC securitized these Ownit loans, along with similar loans from another loan originator, in its approximately $1.2 billion ABFC Asset-Backed Certificates, Series 2005-HE2 transaction. Banc of America Securities LLC served as the underwriter in that transaction....

 In two separate transactions on March 9 and March 14, 2005 Bank of America N.A. purchased Ownit residential mortgage loans in an aggregate amount of approximately $265 million. These loans were held for the account of Bank of America, N.A. until they became part of the August 2005 securitization described at Item 2.b above. These loans were purchased in a competitive, arms-length process at fair market terms" -- followed by more than half a page blacked out.

  This was the level of secrecy in the time leading up to the subprime lending meltdown. Now Ken Lewis implies that the assets being insured by the government all came from Merrill Lynch, when 25% are from BofA itself. Will Ken Lewis go the way of Citigroup's Chuck Prince and Robert Rubin?  Many say that he should.

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