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The big banks' mortgage woes keep piling up, in a backlog that is likely to drag down their profits — and a broader housing recovery — for the foreseeable future.
January 23
Bank of America Corp. has stopped selling some residential mortgages to Fannie Mae, saying that it let its contract expire in part due to ongoing disputes over mortgage repurchase claims.
The second-largest bank by assets will continue selling Fannie loans and modifications made under government programs such as the Making Home Affordable Program, according to a
As of February, Bank of America will not deliver "purchase money and non-Making Home Affordable Program (MHA) refinance first-lien residential mortgage products" into Fannie securities pools, the bank said in the filing, adding that it and Fannie made a "mutual" decision to stop the flow of loans to the GSE. While B of A still has a valid agreement to sell mortgages to Fannie, it is unwilling to do so following the expiration of a deal allowing for "contractual variances." In the filing, the bank did not expand on whether those variances dealt with volume, underwriting quality, or some other issue.
But B of A will continue selling residential mortgages to Freddie Mac, with which it "has a contract in place," spokesman Dan Frahm told American Banker.
"We have several other sources of liquidity to extend mortgage credit to our customers and we will increasingly be leveraging those," he said, citing the bank's relationships with Freddie and Ginnie Mae as examples, as well as its ability to use its balance sheet.
Bank of America is facing $14.3 billion in mortgage repurchase requests from various parties, including the GSEs, after its ill-fated acquisition of Countrywide Financial Corp. landed it with a massive backlog of soured mortgages.
Those repurchase claims apparently soured Bank of America's contract negotiations with Fannie. In its filing, the bank said its decision not to renew the contract "was influenced, in part, by our ongoing differences with [Fannie Mae] in other contexts, including repurchase claims."
B of A added that, while it is "seeking to resolve our differences with the GSEs concerning each party's interpretation of the requirements of the governing contracts, whether we will be able to achieve a resolution of these differences on acceptable terms and timing thereof, is subject to significant uncertainty."
Bank of America's announcement follows a period of great strain in the relationship between large banks and the GSEs. In addition to repurchases, Fannie has upset the industry by charging "compensatory fees" for delayed foreclosures even as banks have perceived it as slowing the process down.
Moreover, there may have been little need for B of A to maintain a relationship with both Fannie and Freddie, especially after drastically reducing its lending volume. While mortgage giants have traditionally maintained relationships with both GSEs, smaller players often send all of their business to just one. Given Bank of America's reduced activity in the mortgage business, Freddie should be able to handle all the bank's current volume, says Dave Stephens, chief financial officer of United Capital Markets.
And Bank of America may simply be choosing to stick with the GSE that offered it a more attractive contract. Fannie and Freddie have long competed for the business of the largest mortgage originators, offering better rates to their biggest customers. It's conceivable that B of A is entitled to better terms for the duration of its Freddie Mac contract than it could have negotiated with Fannie Mae, Stephens says.
