BofA legacy issues burn, looks to increase mortgage production

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Bank of America’s ($13.46 -0.05%) [3] revenue decreased $2.8 billion from the fourth quarter of 2011 to $468 million in the fourth quarter of 2012, due largely in part to higher representation and warranty provisions as well as lower servicing income, driven by less favorable mortgage servicing rights.

Despite this, for the fourth quarter, first-lien mortgage production increased 6% from the previous quarter. Also, period-end commercial loans and leases in the global banking segment including real estate loans grew 7% from the third quarter to $252 billion.

"We enter 2013 strong and well positioned for further growth," said chief executive officer Brian Moynihan at Bank of America.

He added, "Double-digit growth since last year in mortgage production, commercial lending, and Global Markets revenue demonstrates the power of deeper customer and client relationships as we intensify the focus on connecting all our capabilities."

However, some mortgage aspects remain a drag on the bank's earnings.

Rep and warrant provisions were $3 billion in 4Q12, compared to $264 million a year prior, up $2.7 billion.  The provision included $2.5 billion for rep and warrants as well as provision of $0.5 billion for obligations related to mortgage insurance recessions related to the Fannie Mae settlements, the earnings report said.  

Furthermore, noninterest expense increased $1.1 billion from the 4Q11 to $5.6 billion primarily due to $1.1 billion of expense related to the Independent Foreclosure Review acceleration agreement [4].

Bank of America agreed to a cessation of the foreclosure review process and to make $1.1 billion payment to a fund established for the benefit of borrowers pursuant to a plan agreed to by the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System.

The company will also provide $1.8 billion borrower assistance including loan modifications and other foreclosure prevention actions. Additionally, there was an increase in default-related servicing expenses from the year-ago quarter as well as an increase in mortgage-related assessments including a provision of $260 million for compensatory fees in connection with the Fannie Mae settlements.

Consumer real estate services reported a net loss of $3.7 billion for 4Q12, compared to a net loss of $1.4 billion from the previous year, primarily due to mortgage banking losses driven by the Fannie Mae settlements and higher expenses, which was partially offset by lower provision for credit losses.

On the positive side, Bank of America continues to make progress on its legacy issues [5], reaching settlements with Fannie Mae to resolve all outstanding and potential agency mortgage repurchase claims on loans originated and sold directly to the government-sponsored enterprise from 2000 to 2008 by Countrywide and Bank of America.

The amount of 60-plus day delinquent first mortgage loans serviced by legacy assets and servicing declined by 163,000, or 17% during 4Q12 to 773,000 from 936,000 at the end of the third quarter, and 1.16 million from the previous year.

cmlynski@housingwire.com [6]