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Three of the nation's top five mortgage originators added more funds to their loss reserves in the fourth quarter than in the third as they continue to get hit by repurchase demands from rep and warranty breaches.
The charges relate primarily to put-back requests from Fannie Mae and Freddie Mac, which were more aggressive in the second half of 2011 in requesting mortgage repurchases, analysts at Keefe, Bruyette & Woods said Monday in a research note.
The representation and warranty loss reserve ending balance at JPMorgan ($52.30 1.33%) remained flat at about $3.6 billion in the fourth quarter, even though claims increased to $462 million from $329 million in the previous quarter. Provisions, or the amount the company added to its reserve balance, totaled $403 million in the quarter from $314 million in the third.
JPMorgan Chase must sort through more than $2.3 billion in claims to buy back defaulted mortgages sold mostly to Fannie Mae and Freddie Mac at the end of the fourth quarter, nearly double the $1.2 billion outstanding at the end of 2010, according to the bank's financial statements.
Wells Fargo ($39.88 0.62%) saw its rep and warranty loss reserve in the quarter rise to $1.3 billion from $1.2 billion in the third. The bank added $404 million to its reserve fund from $390 million in the third quarter, while charge-offs declined to $272 million from $384 million in the same period. GSE requests ticked up to $1.58 billion from $1.50 billion in 3Q11 while private requests fell to $167 million from $208 million.
Rep and warranty loss reserve at Citigroup ($51.45 0.84%) increased sequentially to $1.19 billion from $1.08 billion. Charge-offs declined to $200 million from $226 million and the provision increased to $312 million from $301 million.
Bank of America ($13.43 0.07%) and Ally Financial ($25.57 -0.09%) reduced the amount added to their reserve balance in the fourth quarter, however, rep and warranty costs for the banks remain elevated.
Bank of America's rep and warranty loss reserve at the end of the fourth quarter declined to $15.86 billion from $16.27 billion as provisions fell to $263 million from $278 million in the third quarter. Charge-offs declined to $683 million from $1.8 billion. New claims and outstanding requests increased to $4.9 billion and $14.3 billion, respectively, from $3.8 billion and $11.7 billion.
GSE claims in the fourth quarter rose 4% to 44% of BofA's total claims outstanding.
Ally Financial's mortgage repurchase reserve ticked down in the fourth quarter to $825 million as both charge-offs and provisions declined. New claims fell to $122 million from $153 million driven by 2006-08 vintages. Outstanding requests were unchanged at $1.1 billion as GSE requests declined moderately, offset by higher monoline claims.
In 2010, Ally reached agreements with the GSEs limiting its remaining exposure. As a result, the company’s related reserves shouldn’t significantly change, KBW analysts say.
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