This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America Still a Giant Mortgage Casino: Street Whispers

Stocks in this article: BAC WFSL

NEW YORK ( TheStreet) -- Bank of America (BAC) may or may not have set aside enough capital to resolve issues associated with loans its Countrywide Financial unit made during the subprime mortgage boom. But it--like other big lenders--will remain a giant interest rate casino.

Bank of America CEO Brian Moynihan underscored that point during an interview with CNBC Tuesday.

"There is an idea that if you get a mortgage now and it's so far below what we think is sort of normalized interest rates that as we say: a moment on your lips, forever on your hips. I mean that thing is going to be stuck with you for a long period of time and we manage our balance sheet very close because of that. And what we mean talking about close is that the duration of our balance sheet's a couple--two and a half years or so. So a lot of mortgages we have we swap out the interest rate risk  because of that. As an industry and as a company we're all doing that," Moynihan said.

In other words, if Bank of America makes a loan at 4% and mortgage rates climb to 7%, the value of the mortgage on Bank of America's balance sheet will drop. So Bank of America buys derivatives to hedge that risk. Moynihan says all banks do that, which isn't true. Washington Federal CEO Roy Whitehead WFSL told me when I met with him in New York a few weeks ago that his bank doesn't do that because, "you take out all the profit if you do that."

Whitehead acknowledges he's facing a risk as well. But who is to say interest rates will go up relatively soon? They could remain where they are for another 10 years, as has happened in Japan.

Among the banks that do hedge interest rate risk, however, they will all do so slightly differently, and few investors will be able to understand exactly how they're doing it. What constitutes true hedging and how much of it to allow is the central question regulators will have to grapple with as they write the Volcker Rule as they have been mandated to do be the 2010 Dodd-Frank financial reform legislation.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs