…up to $47 billion worth of dog food, to be exact. A group of institutional investors (and the NY Fed) have figured out that the fastest way to get some crappy MBSes off their books is to make $BAC take back the ish Countrywide was peddling:

[Bloomberg] said Pimco, the New York Fed and BlackRock sent a letter to Bank of America this week seeking to “force” the bank to buy back bad loans. The debt in question had been packaged into a $47 billion mortgage-bond securitization by Countrywide Financial before it was acquired by BofA.

And once again we miss Kenny, because it is kind of funny to picture William Dudley poking him with a stick until he got frustrated and agreed to take back a bunch of bad loans. Moynihan just isn’t as funny to me. It’s sad. Chuck Noski isn’t either. But I digress:

During Bank of America’s conference call, CFO Chuck Noski referred to a “letter” management had recently received from eight investors.

“In our capacity as the servicer on 115 private label security transactions, we received a letter from eight investors purportedly owning interest in those transactions,” said Noski. “The letter asserts breaches of certain servicing obligations including an alleged failure to provide notice of breaches of reps and warranties. While we continue to review and assess the letter and have a number of questions about its content — including whether these investors actually have standing to bring these claims — we continue to believe the servicer is in compliance with its servicing obligations.”

Noski said the deals had an original balance of $104 billion, which now stands at $46 billion due to prepayments and defaults.

Your guess is as good as mine how much of the difference was prepayments and how much was defaults, but we really doubt people have paid down >50% of their mortgages in the last few years.

This is not a new concept, really – the NY Fed said back in August that it was going to demand banks take back the contents of some MBSes it acquired during the massive failings of Bear Stearns and AIG. Still, unsurprisingly, $BAC is doing the opposite of rallying on this news, though the company isn’t worried. It has set aside a mere $872 million to cover this kind of repurchases this quarter, which sounds like nothing to sneeze at until you look up at that $46 bil figure. $JPM, who has set aside a full billion to deal with this kind of issue, estimates that the entire banking industry could take a $120 billion hit from buybacks. And of course, this likely does nothing to keep homeowners in these homes or to stop house prices from grinding downward, but it’s good to have a little fiddle music while Rome burns.