Bank of America (BAC) doubled exposure to unresolved mortgage-buyback risk in the first nine months of the year as more putback claims surfaced.
The mega bank said its notional repurchase risk on unresolved reps and warrants stood at $25.5 billion on Sept. 30, up from $12.6 billion last December.
This risk exposure relates to the unpaid principal balance of affected loans, said Jerry Dubrowski, a spokesperson for BofA. The bank's true loss exposure is likely to be lower than the $25 billion estimate when accounting for loan collateral, underlying mortgage insurance and the potential for settlement, Dubrowski said.
BofA holds $16 billion in reserves to cover repurchase risk, but Dubrowski estimates another $6 billion in potential buyback risk — a figure that is beyond today's loss reserves.
"It could be less than that," Dubrowski asserted in an interview with HousingWire, but there are several factors creating uncertainty.
BofA's ongoing dispute with Fannie Mae over who is responsible for handling loans in accordance with GSE guidelines continues to clog the drain of putback claims, Dubrowski added. This alone may be pushing the company's risk exposure higher since the dispute process is keeping both parties in limbo.
Those particular buyback requests are essentially on hold until Fannie and BofA can work out their differences on certain loans originated from 2005 to 2007.
In the first nine months of the year, Fannie Mae alone submitted $7.1 billion in repurchase claims on loans originated in the 2005-to-2007 period. When accounting for all loan issuance periods, Fannie Mae filed $8.7 billion of repurchase claims from January to May.
"For the claims related to originations between 2005 and 2007, $5.8 billion were related to loans on which the borrower had made at least 25 payments, including $2.9 billion related to loans on which the borrower had made at least 37 payments. We continue to believe that our interpretation of the governing contracts is consistent with past practices between the parties and our contractual obligations," Banf of America said in a filing with the Securities and Exchange Commission.
In just the three-month period ending in September, BofA received $5 billion in new repurchase requests, including $2.7 billion from the GSEs.
About $2.2 billion in claims were resolved during the same period. Those resolutions included the bank's recent $375 million settlement with bond insurer Syncora Guarantee over mortgage-backed securities guarantees.
Christopher Whalen with Tangent Capital Partners has been following the putback risks and RMBS litigation plaguing BofA for a while. Whalen believes BofA's reserves should potentially be double what they are today.
"These guys have been pretending this problem doesn't exist for a long time," he said. "I am not suggesting it will cost $350 billion." But, he added, "the totality of the claims they are facing justify a $50 to $75 billion reserve."
Whalen, who has called for BofA's restructuring, cites the uncertainty around the cost of resolving putback claims and RMBS litigation as just one of the factors prompting his calls for major changes within BofA.