BofA Says Loan Repurchase Claims Rise to Record $14.3 Billion
Bank of America Corp., the second- biggest U.S. lender by assets, said unresolved demands from investors who accuse the company of selling defective mortgages rose to a record.
Outstanding claims jumped 22 percent in three months to $14.3 billion as of Dec. 31, the Charlotte, North Carolina-based bank said today in a presentation. The increase was fueled by disputes with Fannie Mae and private investors who are submitting demands for compensation on the grounds that they were misled about the quality of mortgage securities.
Chief Executive Officer Brian T. Moynihan, 52, is seeking to limit costs tied to mortgages sold by Countrywide Financial Corp., which Bank of America bought in 2008. The lender told Fannie Mae, a so-called government-sponsored enterprise, last year that it won’t cooperate with what Moynihan’s company deemed a new policy that banks must repurchase loans if an insurer drops coverage.
“With respect to Fannie, there’s a disagreement as to exactly what should come back, and to the extent that there’s a disagreement, you will see the GSE numbers go up,” Chief Financial Officer Bruce R. Thompson said today during a conference call. “At this point, we believe our position is correct and we’ve accrued for what we owe.”
The total of outstanding claims rises when investors submit new demands and falls when their requests are rejected or paid. Outstanding claims were $11.7 billion as of Sept. 30, which includes loan disputes covered in an $8.5 billion deal with bond buyers that’s being challenged in court. The quarterly peak last year was $13.6 billion.
Inconsistent Views
Bank of America had a $15.9 billion liability set aside for the claims as of Dec. 31 after adding a $263 million provision in the fourth quarter. The bank said it can’t project how much more might be needed to resolve disputes with Fannie Mae because the firm’s demands “remain inconsistent with our interpretation of our contractual obligations.”
“If people are more aggressive in what they put in those, there will be more impasse, and we’ll deal with it over time,” Moynihan said today in a conference call.
Moynihan settled some disputes with Fannie Mae and Freddie Mac in a $3 billion agreement announced last year, part of about $40 billion in costs from faulty mortgages. Further losses to resolve disputes with trustees for private investors could be $5 billion beyond what the company has set aside, the bank has said.
The total for outstanding claims will drop if the $8.5 billion deal wins court approval, said Jerry Dubrowski, a spokesman for Bank of America. The trustee for the debt in the case is Bank of New York Mellon Corp. (BK)
New Claims
“The outstanding claims remain elevated as the approval process for the Bank of New York settlement continues,” Dubrowski said in an e-mail. Some of the bank’s reserves include funds for claims that haven’t yet been submitted, he said.
New claims climbed 28 percent to $4.85 billion from the third quarter, fueled by loans originated in 2006 and 2007. The figure is a 16 percent drop from the $5.75 billion in new claims in the last three months of 2010.
Bank of America today posted fourth-quarter net income of $1.99 billion, compared with a loss of $1.24 billion a year earlier, as the firm sold assets to build capital.
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.
To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net
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