Maybe you thought Bank of America Corp.'s disputes over imploded Countrywide Financial Corp. mortgages were -- just possibly -- beginning to ebb.
Bank of America said Thursday that it would no longer provide new mortgages to Fannie Mae, the giant loan buyer that needed a taxpayer bailout because of enormous losses on loans from Countrywide and other dark stars of the housing boom.
BofA, for its part, also has suffered tens of billions of dollars in losses as a result of buying Countrywide in 2008. It is embroiled in legal tugs of war with Fannie, Fannie's cousin Freddie Mac and a host of private investors who say Countrywide loans, sold as fodder for what became known as “toxic” mortgage securities, were damaged goods that BofA must repurchase.
In its 10-K annual report to securities regulators, BofA said Fannie’s demands for buybacks or compensation have gone far beyond its “historical claims experience.” Indeed, it said, so unprecedented are the demands of Fannie and Freddie that it can no longer estimate how high the costs could go.
It said “reasonably possible” losses from litigation could add up to $3.6 billion in addition to funds it’s already accrued for settlements.
A Fannie Mae spokesman declined to comment.
Dan Frahm, spokesman at Bank of America's home-loan headquarters in Calabasas, said the Charlotte, N.C., bank would compensate for the loss of Fannie Mae as a mortgage buyer by selling more loans to Freddie Mac and keeping more on its own books.
BofA is only cutting the flow of new loans to Fannie Mae, Frahm said, pledging that the bank would continue to try to help struggling borrowers refinance or modify mortgages that are backed by Fannie.
Borrowers who have made timely payments on loans with balances larger than their home values have been clamoring to refinance under an Obama administration program known as HARP whose guidelines were recently relaxed, bank officials have said.
Fannie Mae was set up as a private company by the government to provide ready funds for home lenders by buying mortgages and pooling them to back mortgage bonds, which have become a staple for investors around the world.
Countrywide was Fannie's biggest loan source during the housing boom, providing it with some $1 trillion in mortgages, analysts say. Former Chief Executives Angelo R. Mozilo of Countrywide and Franklin Delano Raines of Fannie Mae at one point even signed a “strategic alliance.”
That pact is ancient history. Paul Muolo, editor of National Mortgage News, said rumors had swirled last fall that Fannie would sever dealings with BofA, complaining that its customer service on troubled loans “stinks” and its processes to qualify borrowers for loans had been inadequate until the middle of 2011.
BofA underwrites loans more carefully now, but it funds “next to nothing,” Muolo said. It has fallen from first to fourth in originations as calculated by National Mortgage News, with production down 74% in the fourth quarter from a year earlier.