Bank of America (BAC) will repurchase roughly $330 million in mortgages it sold to Freddie Mac due to "contractual matters," according to a filing with the Securities and Exchange Commission.
The loan repurchase will be completed by the end of May, Freddie said.
Analysts at Barclays Capital noted the affected pools were mostly issued in 2010 and 2011, and originated entirely by Bank of America (BAC). The buyouts are for a variety of mortgage products such as 30-year, 15-year mortgages as well as ARMs.
"Freddie Mac had mentioned a change in its rep and warranty sampling methodology in its latest Q1 filing," wrote the analysts in a note to clients. "We suspect these rep and warranty buyouts may be related to its new sampling system."
Data released by Freddie Mac shows prepayments on loans packed into mortgage-backed securities declined in April after rising in February and March, according to analytics firm Keefe, Bruyette & Woods (KBW).
Analysts expected additional refinancing opportunities from the government's enhanced Home Affordable Refinance Program, or HARP 2.0, to increase prepayments within MBS securities in early 2012.
Full details on the pools affected by the buyouts were not released, but Freddie provided a list of pools for which the share of balance to be bought-out exceeds 5%. The pools represent an outstanding balance of $1.3 billion.
It is unclear if this is an isolated issue or a process that will be revisited at regular intervals. Also unclear is the motivations behind the buyouts. They do raise questions, however.
If these are representation and warranty repurchases on post HARP loans originated under a fairly tight underwriting regime, Barclays said, they will generate concerns around buyouts on newly originated loans.
And though this round appears to be entirely targeted at BofA-issued pools, it is unclear if other originators are being targeted.
“We hesitate to opine on valuations absent further clarification on these issues. However, this development is likely to raise policy-related buyout fears,” Barclays analysts wrote.