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Tags: bofa | Countrywide | Moynihan | Mortgages

BofA Escaping Countrywide to Help CEO Moynihan Rebuild

Tuesday, 08 January 2013 09:57 AM

Bank of America Corp. struck deals to settle lending complaints, sell rights to service $300 billion of mortgages and repair relations with regulators. For Chief Executive Officer Brian T. Moynihan, it offers his best chance to rebuild the home lending business.

The firm reached an $11.7 billion agreement designed to resolve most disputes with Fannie Mae two years after Moynihan said the bank “largely addressed” the liabilities. It sold the rights to service about 2 million mortgages, and with 9 other banks, will pay $8.5 billion to end reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators.

“Resolving legacy issues allows the bank to shift attention from non-revenue-generating activities to focusing on growing business,” said Kevin Choquette, an analyst at Scotia Capital Inc. in Toronto. “You’re going from defense to offense.”

The Fannie Mae settlement covers most claims from the bank’s single biggest mortgage adversary, which had purchased $1.4 trillion in loans from Bank of America and Countrywide Financial Corp. It’s the latest effort by Moynihan to cap the damage caused by his predecessor’s 2008 takeover of Countrywide as the U.S. housing market imploded. The firm has tallied almost $50 billion in costs tied to covering refunds and litigation from faulty mortgages and foreclosures.

‘A Mess’

“There’s a lot here that Brian Moynihan had to fix,” Paul Miller, an FBR Capital Markets Corp. analyst, said in an interview on Bloomberg TV. “I don’t blame any of this on the current management team. They were given a mess. And they are working their way through it as best as they possibly can.”

Bank of America’s mortgage originations plunged 37 percent to $21.3 billion in the third quarter of 2012 from a year earlier, according to newsletter Inside Mortgage Finance, as the bank slumped to fourth from first when it acquired Countrywide.

The settlement paves the way for the bank to have a “regular relationship” with Fannie Mae, after the government- backed agency last year cut the company off from funding for new loans, Vipul Jain, an analyst at Morgan Stanley, wrote in a report Monday.

It also sold the rights to service $215 billion of home loans to Nationstar Mortgage Holdings Inc. and $93 billion to Walter Investment Management Corp. The number of delinquent loans that Bank of America services will drop by 30 percent, according to Jain.

‘Legacy Issues’

“As Bank of America clears out the legacy issues, we expect the focus of the firm to shift back from distressed servicing to traditional servicing and mortgage lending,” he wrote.

The moves should help reduce mortgage rates, which jumped 0.16 percentage point last week to 3.54 percent, by increasing competition, according to Credit Suisse Group AG analysts led by Mahesh Swaminathan.

“We are focused on growing customer share, rather than market share, and since repositioning our mortgage origination business, we have seen steady growth,” said Dan Frahm, a Bank of America spokesman.

Stock and bond investors are showing increased confidence in the second-biggest U.S. bank by assets. Bank of America has almost doubled to $12.09 in the past year and is at about the highest level since May 2011. The cost to protect its debt from default using credit-default swaps has shrunk to the lowest since April 2010 and is about the third the level of a year ago.

Settlement Details

In the settlement announced Monday, Bank of America will make a $3.6 billion cash payment, spend $6.75 billion to buy back residential loans sold to Fannie Mae, and pay $1.3 billion in fees for taking too long to assist or foreclose on overdue borrowers, according to separate statements.

Even after these costs and an additional $2.5 billion for expenses that include litigation and a separate regulatory settlement, the Charlotte, North Carolina-based lender said the fourth quarter was “modestly” profitable.

In a separate settlement, 10 of the largest U.S. mortgage servicers, including Bank of America, agreed to pay a combined $8.5 billion of foreclosure abuse claims from the 2011 deal with regulators, the Office of the Comptroller of the Currency and Federal Reserve said in a statement Monday.

Bank of America accounted for about $2.9 billion of the settlement, according to a person with direct knowledge of the costs. That makes it the largest single participant. About $1.1 billion of the expenses are in cash payments and $1.8 billion comes in the form of assistance for distressed homeowners.

Faster Payments

The agreement is intended to speed up payments to borrowers who otherwise would have continued to wait under the case-by- case review. Eligible borrowers are expected to get payments of as much as to $125,000, depending on how badly their foreclosure was handled, the regulators said.

Bank of America does quality checks on mortgages three times, Moynihan said Dec. 14 in response to questions after a speech at the Brookings Institution in Washington.

“We have to make sure the loan we originate is ironclad,” Moynihan said. “It’s frustrating to me because we can’t get our loans closed fast enough for our customers.”

While Bank of America has probably dealt with the bulk of its troubles from Countrywide, it’s battling bond insurer MBIA Inc. and other buyers of mortgages demanding refunds.

Unresolved demands that Bank of America repurchase mortgages rose 12 percent to $25.5 billion as of Sept. 30, fueled by disputes with Fannie Mae and private investors, the firm said.

“Cleaning up Fannie Mae is one step in the right direction, and it’s a good move,” said FBR’s Miller. “We thought this would be dragged out many years, or at least another two.”

© Copyright 2022 Bloomberg News. All rights reserved.

Bank of America Corp. struck deals to settle lending complaints, sell rights to service $300 billion of mortgages and repair relations with regulators. For Chief Executive Officer Brian T. Moynihan, it offers his best chance to rebuild the home lending...
Tuesday, 08 January 2013 09:57 AM
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