Bank of America (BAC) is faced with numerous reps and warrants challenges on the mortgage front, and as a result of growing uncertainty, it will no longer sell certain mortgage refinances into Fannie Mae mortgage-backed securities.
“The issue is tied to ongoing disagreements between Bank of America and Fannie Mae in regards to repurchases,” said Dan Frahm, spokesman for BofA.
Specifically, Bank of America will no longer place non-Making Home Affordable Program (MHA) refinance first-lien residential mortgage products into Fannie mortgage-backed securities.
Making Home Affordable is the Obama administration’s initiative to help struggling homeowners get mortgage relief through a variety of programs.
“We continue to deliver MHA programs, including loan modifications and refiancing through HARP to our customers whose loans are owned by Fannie Mae,” Frahm said, adding mortgage origination levels will not drop at the bank. “We’re adequately prepared for this, there will be no impact to our customers.” BofA will likely do more business with Freddie Mac and Ginnie Mae as a result of this decision.
The bank says the risk of repurchases on non-MHA mortgages is too great, and hedging repurchase risk is now too difficult.
“We are not able to predict changes in the behavior of the GSEs based on our past experiences,” BofA reports in a regulatory filing with the Securities and Exchange Comission. “Therefore, it is not possible to reasonably estimate a possible loss or range of possible loss with respect to any such potential impact in excess of current accrued liabilities,” the filing states.
“The ultimate resolution of these exposures could have a material adverse effect on our cash flows, financial condition and results of operations,” the filing said.
At the heart of the decision is recent changes in mortgage insurance policies. The filing notes Fannie Mae policy where MI rescission must be resolved in a timely fashion. As of Dec. 31, 2011, 74% of the MI rescission notices received had not been resolved, and Fannie began exercising repurchases with Bank of America.
“We have informed FNMA that we do not believe that the new policy is valid under our relevant contracts with FNMA and that we do not intend to repurchase loans under the terms set forth in the new policy,” BofA states. “If we are required to abide by the terms of the new FNMA policy, our representations and warranties liability will likely increase.”
