Tags: BofA | Defend | Shareholders | Mortgage | Buybacks

BofA Will ‘Defend’ Shareholders in Mortgage Buybacks

Wednesday, 20 October 2010 01:50 PM

Bank of America Corp. will “defend our shareholders” by disputing any unjustified demands 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, 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 that costs of buying back mortgages that didn’t meet investors’ standards declined about 30 percent to $872 million from the second quarter. Shares of the Charlotte, North Carolina-based company declined 9.1 percent last week, reaching their lowest level in more than a year, amid scrutiny of foreclosures and speculation that investors may force lenders to buy back faulty loans.

The bank said 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.

Quarterly Loss

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 reported a $7.3 billion loss after taking a goodwill charge of $10.4 billion in the wake of laws 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.

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 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 almost $2 trillion in loans from 2004 to 2008 to government-sponsored entities, such as Fannie Mae and Freddie Mac, Moynihan said. About 1.5 percent are later debated. Of every three 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.”

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.

‘Grossly Distorted’

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.

“We are concerned about the delay, the political risk, of these foreclosures, but it really appears BofA is moving forward,” said Paul Miller, an FBR Capital Markets analyst who has an “outperform” rating on the stock, in an interview. While the bank’s statements show buyback costs may not balloon to meet some analysts’ estimates, “it’s something we have to try to quantify sitting on the outside,” he said.

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Bank of America Corp. will defend our shareholders by disputing any unjustified demands 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...
Wednesday, 20 October 2010 01:50 PM
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