Bank of America's Rosy Housing Outlook

Bank of America (BAC) is betting a recovery in home prices this year will allow it to avoid new losses on mortgage loans. That outlook clashes with the views of some independent analysts—and its own economist. Chief Executive Officer Brian T. Moynihan's credibility is riding on the outcome as he seeks to convince investors that the lender can curb costs from bad mortgages. The bank had to book $3 billion in expenses in the past two quarters because it underestimated the slide in housing values. It says it may suffer $1.5 billion in losses for every four percentage points that home-price declines exceed its estimates for a market that Moynihan told shareholders on May 11 still faces "enormous challenges."

While Bank of America does not disclose its home price forecast, spokesman Jerry Dubrowski says it is "close" to the average 1.4 percent decline predicted by 111 economists surveyed by research firm MacroMarkets. Neil Cotty, the bank's chief accounting officer, said on an Apr. 15 conference call with analysts that home prices may begin a "gradual improvement over the second half."