By Hugh Son and — Bloomberg News,
Bank of America, the lender that announced a $3 billion settlement with Fannie Mae and Freddie Mac this year, told investors that elevated claims from the firms may cost more than previously forecast.
New demands for refunds on soured loans from the mortgage companies, both government-sponsored enterprises (GSE), are coming “in numbers that were not expected based on historical experience,” the bank said Thursday in its quarterly filing. Washington-based Fannie Mae and McLean-based Freddie Mac are being “more rigid” in resolving demands, said the bank, the worst performer Friday in the Dow Jones industrial average.
1
Comments
- Weigh In
- Corrections?
Chief Executive Brian T. Moynihan has booked about $30 billion in settlements and write-downs to clean up faulty mortgages. In June, the firm said second-quarter charges for soured loans would probably be enough to cover remaining repurchase liabilities unless the “behavior” of Fannie and Freddie changed.
The biggest U.S. bank’s stock fell 7.5 percent to $8.17 Friday and has dropped more than 35 percent this year, dogged by concerns that mortgage expenses and a stagnating U.S. economy will crimp profit and force the company to bolster its capital by selling new shares.
Fannie Mae can request a buyback if a mortgage insurer denies coverage for a Bank of America loan, even when the lender disputes the insurer’s decision, according to Thursday’s filing. Companies have three months after being denied coverage to appeal the repurchase demand and will have just 30 days starting in July 2012, Bank of America said.
“This announcement could result in more repurchase requests from Fannie Mae than the assumptions in our estimated liability contemplate,” Bank of America said. The lender may not be able to resolve insurance disputes in time, meaning that “our representations and warranties liability may increase.”
Bank of America said in a May filing that the behavior of Fannie and Freddie “continues to evolve” and that claims had increased in the first quarter. The firm’s disclosure Thursday elaborates on that theme, said Larry DiRita, a bank spokesman.
“We have previously disclosed that GSE behavior is evolving in a way that diverges from our long-standing course of dealing with them,” DiRita said. “We have taken into account and will continue to closely monitor and assess the possible risks associated with these changed behaviors.”
In January, the bank disclosed the $3 billion in settlements with Fannie and Freddie. Assuming stable housing prices and that the GSEs’ behavior didn’t change, the accords “largely addressed” those liabilities, the bank said. Moynihan told investors that management was “pleased to put the GSEs behind us.”
Since then, the bank has announced more than $15 billion in additional provisions for loan-repurchase costs. While most of that is tied to an $8.5 billion settlement with institutional investors and $5.5 billion in additional provisions announced in June, some of the new expenses are tied to Fannie. Amy Bonitatibus, a Fannie Mae spokeswoman, declined to comment.
— Bloomberg News
