BofA mortgage move not likely to have big consumer impact
(Reuters) - Bank of America Corp (BAC.N) appears to be going it alone in not selling mortgage loans to Fannie Mae, a move that, while sending an angry signal to the nation's largest mortgage-buyer, could force the bank to charge less attractive mortgage rates.
Some major competitors indicated on Friday they are not following Bank of America's decision to stop selling most of its new loans to the government-controlled buyer of home loans.
Bank of America's decision, which follows years of legal wrangling with Fannie (FNMA.OB), could drive up the bank's own mortgage costs because it would have one less bidder for its loans.
"It could make them a little less competitive," said Guy Cecala, publisher of industry publication Inside Mortgage Finance.
Lenders typically like to sell loans to both Fannie and sister agency Freddie Mac (FMCC.OB) to play them off each other. So Bank of America's decision could mean it can't offer the best rates, Cecala said.
Bank of America said on Thursday it stopped selling home-purchase loans and some refinanced mortgages to Fannie Mae, a government-sponsored entity that buys loans to replenish the liquidity of banks. The move sparked concern that funding for mortgages could tighten if more banks refused to sell their loans to Fannie and Freddie.
The move does not mean a lot to the mortgage market, because Bank of America provided only 3 percent of the loans Fannie bought in the fourth quarter of 2011 and the bank still plans to sell mortgages to Freddie, or hold them on its own books.
It also does not mean much to Fannie, which can buy loans elsewhere.
Still, it is a strong statement for a large lender to stop selling some loans to Fannie. Bank of America and the mortgage buyer are tangled in a dispute over soured loans that Fannie wants the bank to buy back.
"They are really digging in their heels and saying they don't want to settle these claims," Cecala said.
The decision also shows Bank of America's shrinking role in the mortgage market. Last year, the Charlotte, North Carolina-based bank dropped to fourth among mortgage originators from second after it stopped buying loans made by smaller banks.
"If one lender does this, I'm not real concerned," said John Taylor, chief executive of the National Community Reinvestment Coalition, a fair lending advocate. "If a number of lenders do this that's a real concern."
Among the biggest lenders, Ally Financial Inc (GKM.N) said on Friday that it "values" Fannie Mae as a partner. Citigroup Inc (C.N) said in a filing that it securitizes loans through Fannie and other government-sponsored entities. Wells Fargo & Co (WFC.N) and JPMorgan Chase & Co (JPM.N) declined to comment. Fannie, Freddie and their regulator declined to comment on whether other banks were taking similar actions.
Fannie Mae and Freddie Mac, which were taken over by the government in 2008 after their portfolios of mortgage loans imploded, provide liquidity to the mortgage market by buying loans originated by lenders or by packaging them into securities. This relationship has been strained, however, as Fannie and Freddie ask banks to buy back soured loans that lenders sold them during the housing boom.
This has been a particularly trying issue for Bank of America, which bought troubled mortgage company Countrywide Financial in 2008. In a securities filing in November, Fannie said about 45 percent of its outstanding loan repurchase requests had been made to one bank, up from 41 percent in December 2010. The one bank was Bank of America, according to a source familiar with the situation.
Selling fewer loans to Fannie likely will not help Bank of America cut back on repurchase requests because fresh loans are being made under much tighter underwriting standards. However, the bank's stance highlights the increasingly tense relationship between the major mortgage players as they feud over billions of dollars in claims.
Bank of America has taken $9.2 billion in losses on repurchase requests on loans originated between 2004 and 2008 and sold to Fannie and Freddie, according to the bank's latest annual report. At the end of December, it faced $6.3 billion in outsanding claims from the mortgage entities.
Uncertainty about how much liability the bank has over repurchase requests by Fannie, Freddie and other investors is one of the main reasons the bank has lagged rivals in recovering from the financial crisis. The nation's second-biggest bank reached a $2.6 billion settlement with Fannie and Freddie in January 2011 that aimed to remove a big part of these claims, but the problem has not gone away.
The pact with Fannie resolved existing claims at the time, but allowed the mortgage entity to keep making new requests that the bank buy back bad loans. In Thursday's filing, the bank attributed its decision to stop selling certain loans to Fannie to "differences" over repurchase requests.
"Fannie Mae remains committed to working with Bank of America to resolve their repurchase issues with us and in doing so, to fulfill its contractual obligations," Fannie spokeswoman Kelli Parsons said.
In an unusual twist in the relationship, Fannie Mae's top lawyer, general counsel Tim Mayopoulos, previously held the same position at Bank of America before he was pushed out in 2008 to create a role for current Bank of America CEO Brian Moynihan. The Wall Street Journal has reported that he has recused himself from dealings with Bank of America.
For all of 2011, Bank of America sold $58.9 billion in loans to Fannie, about 10.7 percent of the mortgage entity's total, according to Inside Mortgage Finance. But in the fourth quarter, the bank only accounted for 3 percent of Fannie's loans. Wells Fargo, the largest mortgage originator, sold $138 billion in loans to Fannie in 2011.
(Reporting By Rick Rothacker in Charlotte, North Carolina; editing by Alwyn Scott and Andre Grenon)
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