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Lehman Brothers Ghost Haunts Bank Foreclosure Deal: Street Whispers

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Recently, the Lehman Brothers estate was close to IPO'ing Archstone a soured residential real estate deal that was at the heart of its 2008 demise. Instead, Lehman's estate sold Archstone to Equity Residential (NYSE:EQR) and AvalonBay (NYSE:AVB). As of late September, Lehman's estate has paid out roughly $33 billion to creditors, as part of a recovery that may net $.20 to $.30 on the dollar, or $65 billion in total payments.

Aurora's appearance in the Fed and OCC's foreclosure review is a stinging reminder of Wall Street's disastrous foray into the mortgage market, and, in particular, how the securitization process weakened lending standards across the US.

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There are other reminders in Monday's IFR settlement.

For instance, Bank of American is the largest payer in the settlement as a result of its 2007 acquisition of Countrywide Financial, a deal that's rung up in excess of $40 billion in losses for the bank. Meanwhile, Wells Fargo, by way of its crisis time acquisition of Wachovia is also on the hook for a large chunk of the settlement. In 2006, Wachovia bought mortgage lender Golden West, in a $25.5 billion deal that eventually spelled its demise.

Other Wall Street players, notably Goldman Sachs, are absent on the list of banks involved in the IFR settlement. In 2011, Goldman Sachs sold its origination and servicing unit, called Litton Mortgage, to Ocwen Financial (NYSE:OCN), in an exit from mortgage underwriting.

Aurora is named by the Federal Reserve as one of the servicers named in the ten-bank settlement. The list also includes JPMorgan (NYSE:JPM), Metlife (NYSE:MET), US Bancorp (NYSE:USB), PNC Financial Services (NYSE:PNC), SunTrust Bank (NYSE:STI), and Sovereign, a unit of Spanish banking conglomerate Santander (NYSE:SAN).

For Bank of America investors, the Independent Foreclosure Review settlement and a $10 billion deal with Fannie Mae appears to have the biggest impact. In total, both settlements appear they will cost the bank in excess of $5 billion, wiping out most of the bank's fourth quarter profit

As part of the IFR settlement, the Fed and OCC said on Monday announced that the foreclosure review had ended, and that the servicers subject to the foreclosure settlement would make $8.5 billion in cash payments and other assistance to borrowers victimized by servicing errors.

Borrowers could receive up to $125,000 each, in a deal that is split between $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance such as modifications.

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