The same thing that Bank of America CEO Brian Moynihan might now be saying to his shareholders: “How long can you tread water?’

Bank of America’s stock is down approximately 25% on the year and close to 35% over the last twelve months. While it has doubled from the Armageddon lows seen in 2008, the stock has fully retraced any moves higher since early 2009. (The graph of Bank of America below is sourced from Market Watch and covers the last three years).

What gives? Will Bank of America need to raise more capital? Will it need another lifeline from Uncle Sam?

While BofA is heavily involved in virtually every segment of today’s consumer, commercial and investment banking world, it remains a consumer banking franchise. As such, its stock price is a reflection of its consumer banking operations and, in turn, the health of the American consumer. Within these circles, BofA’s mortgage operation is the real engine but also the real drag on the company. In fact, I view BofA as a proxy for the American housing market.

You do not need to read me to know that the housing market remains a real problem in our nation. The question for BofA shareholders is to what extent has the company recognized real losses in its current mortgage operation and reserved against impending future losses.

BofA management would have us believe that those questions may not be able to be fully answered because no one truly knows what the state of our nation’s housing market will be a year, two years, or even five years from now. These uncertainties hang over BofA like a shroud. Markets punish uncertainty and right now the market is punishing BofA’s stock for that very reason.

What type of uncertainty? Just from this morning alone:

1. BofA May Post $27 Billion More Housing Losses, Bernstein Says; Bloomberg, June 13, 2011,

Bank of America Corp. (BAC), the largest U.S. lender, may face a further $27 billion of housing-related losses between now and 2013 as the economic and regulatory environment worsens, analysts at Sanford C. Bernstein said.

The losses would be in addition to the $46 billion the Charlotte, North Carolina-based lender has already recorded since the financial crisis, analysts led by John E. McDonald wrote in a note to clients today.

“The process of addressing legacy mortgage issues will be long and arduous,” the analysts said. “Recent declines in home prices and an uptick in employment trends create an upward bias to our loss estimates” for the lender. Bernstein has an “outperform” recommendation on the stock.

Outperform? Interesting! Mr. McDonald must believe the current valuation already factors in these losses. But has the company properly reserved? What about other losses? Let’s continue to navigate.

2. Financial Times, Concern Rises Over U.S. Mortgage Defaults:

Mortgages held by US banks are performing far worse than home loans sold to Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies, according to federal data made available to the Financial Times.

The Office of the Comptroller of the Currency has never before released the data but is considering adding the information to its monthly mortgage report.

Think investors may like a look at this data? You think?

Bank-retained loans would typically be made to higher-risk borrowers and, therefore, tend to have higher default rates than loans sold to or guaranteed by the government. But the rate at which bank-held loans are going delinquent raises questions about whether the banks have properly reserved for future losses.

Nearly 20 per cent of non-government-guaranteed mortgages held by the banks are at least 30 days late or in some stage of foreclosure, compared with 7 per cent for loans held by Fannie Mae and Freddie Mac, now controlled by the federal government, according to the data.

The rate at which borrowers of these bank-held loans are falling behind on payments is second only to mortgages that were packaged by banks into securities and sold to investors.

Really? What does this tell us? The banks packaged and sold the real dregs when the markets were fully functioning.

Roughly 30 per cent of borrowers with mortgages in these instruments, known as “private-label” securities, have missed at least two payments, according to Laurie Goodman of Amherst Securities.

3. We all know banks have fabricated their accounting and reporting over the last few years. Is there any doubt that the regulators have given them a wink and a nod in the process? The Wall Street Journal indicates as much in its lead story, Regions Financial Probes Executives:

The board review comes as regulators step up scrutiny of methods banks use to classify loans, which can make banks appear healthier than they are. Investigators are looking at so-called extend-and-pretend cases—where a bank gives a borrower more time and delays reclassifying a souring loan—as well as at “troubled-debt restructurings,” where a bank breaks up a nonperforming loan and labels a portion of it as performing.

What all these cases have in common is “a tendency not to want to report bad news,” said Bert Ely, a longtime bank analyst based in Alexandria, Va.

Add this all up and the smoke and mirrors in many a banking operation today continue to cloud the real health of these organizations. While BofA’s shareholders specifically may be faced with the same question the Lord posed to Noah, the fact is in light of the unknown size of losses throughout our banking system, all investors and individuals in our nation today are faced with another Biblical uncertainty. What may that be?

The great unknown presented in the garden of Eden when Adam confronted Eve.

Navigate accordingly.

Larry Doyle is a Wall Street veteran, having worked at such banks as First Boston, Bear Stearns and Union Bank. He blogs at www.senseoncents.com