BofA shrinks its delinquent loan portfolio
But legacy mortgage issues are far from gone
In three years, Bank of America (BAC) managed to reduce its loan servicing portfolio by nearly 50%, as the firm leaned heavily on subservicing agreements and sold off mortgage servicing rights, analysts with Moody’s Investors Service claim in a new report.
Back in 2010, BofA identified 6.5 million of the 13 million loans in its servicing portfolio as high risk, targeting that particular pool for sale or subservicing.
Fast-forward to today, and the bank’s subservicing portfolio now stands at 6.7 million loans with an unpaid principal balance of $910.1 billion—down from 10.5 million serviced loans with a balance of $1.5 trillion back in August of 2012, the ratings giant reported.
Being able to distance itself from potentially delinquent loans is a major success for BofA, considering the bank absorbed many toxic servicing issues after acquiring Countrywide and its pool of distressed mortgages in the wake of the financial crisis.
Even though the firm is distancing itself from Countrywide's leftover loans, BofA is not out of the woods just yet.
"It’s true they have certainly knocked down the amount of bad loans in their portfolio," an industry insider familiar with the portfolio said. But, he added, "The real legacy (mortgage) issues still remain."
For now, the bank is part of a three-ring circus, the industry insider points out. That circus is essentially created by the constant oversight of BofA. The bank is consistently under attack from state Attorney Generals, like Eric Schneiderman out of New York and Kamala Harris out of California, the insider explained. Not to mention, BofA faces regulatory pressures from the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the National Mortgage Settlement.
The other big issue hanging over BofA's head is the proposed $8.5 billion mortgage-bond settlement agreement that still has to be approved by a judge to clear away MBS liabilities. If that issue is not resolved, the liabilities could be much larger, the industry insider lamented.
At this point, BofA is much like Citi (C) in that both banks have been attacking their mortgage portfolios in an attempt to reduce exposures, the insider pointed out. “It certainly is not a bad thing at all,” he added.
Moody’s says BofA reduced its employee roster from 59,000 employees to 42,000. In addition, it now has 33 servicing locations and 8 vendors sites, down from 51 locations in Moody’s previous review. The firm also cut vendor relationships while trimming its fat.
The bank now outsources 25% of its early-stage collections, down from peak levels of 70%.
"Its use of single point of contacts to coordinate loss mitigation activities has also fallen to just under 2,000, from 9,000 in November 2012,” Moody’s concluded.