BofA $19 Billion Mortgage Cost Defies Bank’s Forecast: Timeline

Bank of America Corp. (BAC) has disclosed more than $19 billion in costs on mortgage-buyback demands in the nine months since the company projected expenses of $500 million a quarter.

Below is a timeline of how the company assessed the severity of the housing market slump, its ability to fight requests that the lender buy back faulty mortgages and how this affected prospects of a dividend increase.

July 1, 2008: The bank buys Countrywide Financial Corp., the largest subprime home lender, for $2.5 billion.

July 21, 2008: “We see sluggishness but not a recession,” then-Chief Executive Officer Kenneth D. Lewis says. “We see housing price depreciation being mostly over this year, maybe going into next year.”

Sept. 30, 2008: MBIA Inc. files suit against Countrywide, saying the lender is responsible for improper underwriting.

Oct. 6, 2008: The bank halves its quarterly dividend to 32 cents a share, taking “one step backwards in order to take two steps forward,” Lewis says.

Jan. 16, 2009: The bank cuts its dividend to a penny a share.

Sept. 30, 2009: The bank faces $7.5 billion of outstanding claims from investors and insurers who said they were duped on mortgage deals by misrepresentations such as inflated borrowers’ income or overstated property values. The firms are demanding the bank buy back the loans.

Jan. 1, 2010: Brian T. Moynihan is promoted to CEO.

Feb. 26, 2010: Bank of America says the cost of resolving the mortgage disputes rose to $1.9 billion in 2009 from $246 million in 2008 on “deterioration in the economy and housing markets combined with a higher rate of repurchase or similar requests.”

Oct. 8, 2010: The bank temporarily extends its freeze on foreclosures to all 50 states as concern spreads among regulators that homes are being seized based on false data.

Oct. 18, 2010: A bondholder group including Pacific Investment Management Co. and BlackRock Inc. sends a letter demanding the bank buy back mortgages packaged into $47 billion of bonds.

Oct. 19, 2010: The bank announces an $872 million third-quarter provision to resolve claims. That compares with $455 million a year earlier, $516 million in the fourth quarter of 2009, $526 million in the first quarter of 2010 and $1.25 billion in the second. “It’s a half billion, half billion, half billion,” Moynihan says. “Those are the kinds of numbers that would be more recurring.”

Nov. 16, 2010: Moynihan says the bank is waging “hand-to-hand combat” over investor demands that the firm buy back mortgages.

Dec. 7, 2010: Moynihan says Bank of America will increase its dividend as fast as possible. “I don’t see anything that would stop us” from raising the payment in 2011, he says.

Dec. 22, 2010: MBIA wins a judge’s permission to use statistical sampling to pursue repurchase demands against the bank, freeing the insurer from the need to assess mortgages individually, as Moynihan had sought.

Jan. 3, 2011: The bank says it will take a $3 billion provision to settle claims from government-sponsored enterprises Fannie Mae and Freddie Mac.

Jan. 21, 2011: “We are pleased to put the GSEs behind us this quarter,” Moynihan says.

Then-Chief Financial Officer Charles Noski projects an “upper range” of $7 billion to $10 billion in losses on outstanding demands from private investors. The loss could be as low as “zero,” he says.

Feb. 28, 2011: The group with Pimco and BlackRock says it is fighting the bank over $84 billion in mortgage bonds after more investors joined. The bank “has a number of questions about the validity of the assertions, including whether the investors are qualified to bring claims,” says spokesman Jerry Dubrowski.

March 8, 2011: Bank of America “can generate significant excess capital and return it to shareholders,” according to a presentation at the company’s first investor day since 2007.

March 23, 2011: Bank of America says the Federal Reserve objected to its request to raise its dividend.

April 13, 2011: The bank is among mortgage servicers that must pay back homeowners for losses from foreclosures on loans that were mishandled, regulators say.

April 15, 2011: The bank says it had a $1 billion first-quarter provision, with more than half tied to Fannie Mae and Freddie Mac as the company’s Home Price Index declined. Moynihan announces a $1.6 billion deal with Assured Guaranty Ltd. to resolve claims tied to mortgage-backed securities covered by the insurer. Outstanding buyback demands climb to $13.6 billion.

May 5, 2011: The cost of private-investor demands may be $11 billion to $14 billion, or $4 billion more than the previous range, if the bank made incorrect assumptions about bondholders’ prospects for making claims, according to a company filing.

Foreclosure delays cost the bank $874 million in the first quarter as the company missed deadlines from Fannie Mae and Freddie Mac, the lender says. The cost climbed from $230 million in the last three months of 2010.

May 24, 2011: Moynihan says, “we still have some work to do” on buyback claims from Fannie Mae.

June 29, 2011: The bank says it agreed to pay $8.5 billion to resolve claims from the Pimco, BlackRock group on $424 billion of bonds and set aside $5.5 billion more for other demands. Losses beyond that may be as much as $5 billion, the bank says. Adjustments on cost estimates are partly the result of fluctuations in home prices, CFO Bruce Thompson says.

“The cost expense and the uncertainty are all taken off the table for half of the private-label claims,” Moynihan says. Settling is better for the bank because it avoids the “possible outcome of being much more adverse to the company if we kept fighting.”

The CEO says the deal accelerates payments that would otherwise be made over several years. “It’s really pulling forward stuff that would have occurred not only in ‘11, ‘12, but also ‘13 and ‘14,” he says.

July 19, 2011: Bank of America posts a second-quarter loss of $8.83 billion, the company’s worst ever. The company says outstanding mortgage claims are $11.6 billion.

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland5@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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