Bank of America Plans to Revive Foreclosures; Shares Advance
Bank of America to Revive Foreclosures; Shares Climb
Andrew Harrer/Bloomberg
A Bank of America branch in Washington.
A Bank of America branch in Washington. Photographer: Andrew Harrer/Bloomberg
Oct. 19 (Bloomberg) -- Brian Moynihan, chief executive officer of Bank of America Corp., discusses the company's third-quarter loss reported today. The largest U.S. lender said its loss was $7.3 billion, or 77 cents a share, due to costs associated with new federal rules on consumer accounts and credit cards. Excluding one-time gains and costs, the bank earned $3.1 billion, or 27 cents a share. (Source: Bloomberg)
Oct. 19 (Bloomberg) -- Charles Peabody, an analyst at Portales Partners LLC, talks about the $7.3 billion third-quarter loss of Bank of America Corp. and the impact a probe into faulty foreclosures may have on the bank. The largest U.S. lender reported a quarterly loss of 77 cents a share compared with a loss of $1 billion, or 26 cents per diluted share, a year earlier. Peabody speaks with Erik Schatzker and Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Oct. 18 (Bloomberg) -- Christopher Whalen, managing director of Institutional Risk Analytics, talks with Bloomberg’s Mark Crumpton about the impact of U.S. mortgage foreclosures on banks and the housing market and the outlook for the economy. Whalen is author of the book “Inflated: How Money and Debt Built the American Dream.” (Source: Bloomberg)
Bank of America Corp. will “defend our shareholders” by disputing any unjustified demands that it repurchase defective mortgages, Chief Executive Officer Brian T. Moynihan said in an interview.
Most claims “don’t have the defects that people allege,” Moynihan said on Bloomberg Television today, referring to so- called putbacks, in which guarantors or investors in mortgage- backed securities ask to return bad loans. “We end up restoring them, and they go back in the pools.”
Bank of America, the largest U.S. lender, said as it reported third-quarter results today that mortgage investors were pushing the company to repurchase almost $13 billion of loans whose standards were challenged. Shares of the Charlotte, North Carolina-based company declined 9.1 percent last week, reaching their lowest in more than a year, amid scrutiny of foreclosures and speculation that investors may force lenders to buy back faulty loans.
The cost of buying back mortgages that didn’t meet investors’ standards declined about 30 percent to $872 million from $1.25 billion in the second quarter. The company expects a cost averaging $500 million each quarter for “the next couple of years or so” tied to faulty loans, a Bank of America executive said on a conference call with analysts. The sum of outstanding claims submitted by investors jumped 71 percent to $12.9 billion from $7.5 billion as of last year’s third quarter.
‘Initial Assessment’
The bank said yesterday it will start resubmitting foreclosure affidavits in 102,000 cases in which judgment is pending. Under pressure from lawmakers and state officials, bankers had been delaying action until they could answer allegations that filings were marred by so-called robo-signing, in which employees vouched for the accuracy of court filings without personally checking loan records. Bank of America’s suspension had included all 50 states as it reviewed documents.
“Our initial assessment findings show the basis for our foreclosure decisions is accurate,” Dan Frahm, a company spokesman, said yesterday.
Bank of America was criticized by community groups and the Service Employees International Union for restarting the process. The company hasn’t spent enough time on its review, the SEIU said in a joint statement with PICO National Network, National People’s Action, Northwest Federation of Community Organizations and Alliance of Californians for Community Empowerment.
‘A Matter of Weeks’
Ohio Attorney General Richard Cordray said the bank may have mishandled tens of thousands of cases.
“They tell us that they have fixed the problem in a matter of weeks,” Cordray said in a statement. “We’re certainly not going to take their word for it.”
The lender will deal with home seizures and repurchase demands “into 2012,” Moynihan said. “You have to tie this into the larger process, which is getting the housing market and foreclosures through the system,” he said.
Bank of America today reported a $7.3 billion loss after taking a goodwill charge of $10.4 billion in the wake of new restrictions enacted this year for card payments and consumer accounts. Revenue net of interest expense rose 2 percent from a year earlier to $27 billion, the company said. Litigation costs and professional fees helped boost non-interest expenses 3 percent. The company slipped 26 cents to $12.08 in New York Stock Exchange composite trading at 1:55 p.m.
Putbacks, rather than faulty foreclosures, are more likely to prove costly for banks, said Meredith Whitney, founder of Meredith Whitney Advisory Group, in an interview yesterday at a conference in Naples, Florida.
Putbacks Not a ‘Blip’
“Robo-signing is just a blip,” she said. “That’s nothing to worry about. The second issue, the putbacks, isn’t a blip.”
Bank of America sold more than $1 trillion in loans from 2004 to 2008 to government-sponsored entities, such as Fannie Mae and Freddie Mac, Moynihan said in today’s interview. About 1.5 percent are later debated. Of every three contested loans, the bank typically takes one back, the GSEs don’t pursue one, “and the other one we fight about and solve,” he said.
As a result, “there’s a long pattern you’re seeing go through” the bank’s earnings, he said. “This is not pleasant, and we would like to get through it. We’re going to defend our shareholders.”
$1.7 Billion
Investors and insurers submitted clams in the quarter for $4.06 billion of loans, according to a slide presentation on the company’s website. Bank of America approved repurchase of $975 million, and $1.37 billion in claims were rescinded. That leaves about $1.7 billion in outstanding claims from the three-month period, on top of the $11.2 billion as of the second quarter.
Mortgage investors were aware that lenders increased business by accepting lower down payments and making funds more available to homebuyers who had inferior credit scores or submitted less documentation than usually required, Chief Financial Officer Charles Noski said on the call. In cases where risks were disclosed, Bank of America shouldn’t be forced to reimburse investors for loans that lost value, he said.
“If you think about people who come back and say, ‘I bought a Chevy Vega, but I want it to be a Mercedes with a 12- cylender,’ we’re not putting up with that,” Moynihan said in the call.
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
Countrywide
The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.
Foreclosure cases reviewed so far affect seizures in 23 states that require judicial action before a home is seized, according to Bank of America. Foreclosure sales will be delayed in the remaining 27 until a state-by-state review is completed, Frahm said yesterday.
Fewer than 30,000 foreclosure sales will have been delayed during the review period, Bank of America said. Costs stemming from the delays are “grossly distorted,” Barbara Desoer, president of the home lending unit, said in an interview last week. Bank of America said it has 1,000 people working on its foreclosure review.
-- Nishad Majmudar, Hugh Son and Saijel Kishan in New York, and Dakin Campbell in San Francisco. Editors: Rick Green, Dan Kraut
To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Erik Schatzker in New York at eschatzker@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.
To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net To contact the reporter on this story: David Scheer at dscheer@bloomberg.net.
Rate These Stories
Rate this Page