Countrywide May Die, But Fine Print Lives Forever

I've pointed out before, in stories and in this blog, that modifying the terms of mortgages that have been packaged into bonds and sold to investors is not as easily done as people think. Specifically, I'd pointed out that the terms of the mortgage bonds that Countrywide issued required it to buy back any mortgages for which it modified terms. That "buy back your own dogshit" rule is the reason that Countrywide spent a good year making sure it didn't do that.

Well, now that Bank of America has bought Countrywide, they've gone ahead and started modifying loan terms--at this point far less an expression of generosity from the bank than of sanity, since the alternative to modifying loans is to foreclose and get stuck with yet more houses the bank can't sell. But guess what? The bondholders have sued , and are demanding Bank of America now buy back $8.4 billion of loans. This may seem crazy to you--the bondholders are not likely to be better served by foreclosure (though there could be exception, the terms are complicated and not all bond holders have the same interests). But the plain language of the terms is clear, so I'm genuinely wondering if the people who keep track of ... oh, you know, potential 11 figure liabilities ... for Bank of America's Ken Lewis told him this before he decided to plunk down a bunch of stock to buy The Most Evil Company In History.