The Heat Continues For One Bankster; Is It Time Yet To Take A 'Short' Position In BofA Stock?

Fortune Magazine reports:

• Are Countrywide mortgage-backed securities really mortgage-backed? Do banks even have the legal right to foreclose on certain homes?
• These are just a few of the questions raised since the foreclosure crisis revealed shoddy mortgage servicing practices at many of the big banks – practices that have led to countless investigations and lawsuits. Court testimony by a former Countrywide employee added to the intrigue last fall, because she confessed that many loans there weren't properly handled, bringing into doubt the validity of Countrywide's securitization process. Bank of America, which owns Countrywide, quickly silenced the discussion with firm denials.
• But Fortune has examined dozens of court records that corroborate the employee's testimony. And if Countrywide's mortgage securitizations systematically failed as it appears they did, Bank of America's potential liability dwarfs its shareholder equity, as the Congressional Oversight Panel points out.
• Last November, a decision in a New Jersey bankruptcy case brought to light the testimony of Linda DeMartini, operational team leader for the litigation management department for Bank of America, which intended to prove the bank had the right to foreclose on a debtor's mortgage. Instead, her testimony was key to the judge's ruling that Bank of America couldn't foreclose, and along the way DeMartini made two statements that called into question the securitization of Countrywide loans.
• She testified that Countrywide didn't deliver the notes to the securitization trustee, and that Countrywide notes weren't endorsed except on a case-by-case basis generally long after securitization ostensibly occurred. Both steps are required, in one form or another, under all securitization contracts.
• Only the delivery issue was really scrutinized at the time, because without a doubt the failure to deliver the notes would invalidate the securitization.
• The other issue, failure to endorse the notes, sparked a debate: the American Securitization Forum argues the notes would still have been securitized without endorsement, while Adam Levitin, associate professor of law at Georgetown Law, convincingly argues that they would not have been.
• If the securitization failed, a variety of securities fraud charges could follow. Indeed, one investor lawsuit based in part on DeMartini's testimony about endorsements and delivery has already been filed. And investors aren't the only possible pursuers of securities fraud -- New York Attorney General Eric Schneiderman is investigating mortgage securitizations by three banks, including Bank of America.

For more, see At Bank of America, more incomplete mortgage docs raise more questions (Fortune examined hundreds of foreclosure documents to determine the validity of mortgage securitizations after Bank of America debunked testimony about them last fall. The results raise more questions than they answer).