---

Why Bank of America Must Be Thrilled to Pay a $3 Billion Penalty
Some people who aren't familiar with the mortgage market might have gasped as they read the news that Bank of America would pay $3 billion to government-sponsored mortgage companies Fannie Mae and Freddie Mac. After all, $3 billion sounds like a lot of money. "Maybe BOA is finally getting what it deserves," some naive bank-haters might have exclaimed. In fact, paying this sum is an incredible win for the bank. The penalty is so small that it's effectively insignificant. ...

...This settlement has a few implications. The most significant is that Fannie and Freddie are essentially admitting that the vast majority of their losses are their fault. The cost of the bailout alone to taxpayers is expected to easily exceed $150 billion. If it obtains a measly $12 billion or so from banks, that puts its responsibility at roughly 92%.

This means one of two things. The first possibility is that Fannie and Freddie really were so screwed up that banks rarely broke any rules or tricked these companies into buying and guaranteeing their garbage mortgages. This is actually somewhat plausible, considering that there was a relatively standardized system in place for selling mortgage risk to Fannie and Freddie. Any bad behavior by banks should be relatively easily identifiable through inaccurate or missing documents. ..