Fannie Mae initiated a reduction in its mortgage business with Bank of America (BAC), not the other way around, according to an executive at the government-sponsored enterprise.

Last week, BofA disclosed it would no longer sell certain mortgages to Fannie Mae. The bank said a disagreement arose from a new mortgage repurchase policy with the GSE, which centered around mortgage insurance policies.

Fannie now tells HousingWire that abnormally long delays of repurchase claims at BofA brought into question whether the bank is acting in good faith to resolve toxic loans written by it and Countrywide, which was acquired in 2008. After some time, Fannie said it had to act.

"We were the one that decided not to renew the lender agreement," Fannie CFO Susan McFarland said in an interview with HousingWire Tuesday. "There was a precipitous drop in BofA's ability to appropriately resolve repurchase requests in a timely manner."

According to a financial filing Fannie made Tuesday, 18% of repurchase requests sent to BofA lasted more than 120 days without a resolution, compared to 2% at each JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC).

BofA had $5.4 billion in outstanding repurchase requests remaining from Fannie, more than five times the amount at Chase. Fannie said more than half of all its outstanding requests reside at BofA.

"They were clearly the outlier," McFarland said. "We tried to take steps to resolve the disagreements. It got to a point where they were not acting in compliance with the contract in place."

BofA said in its fourth-quarter filing that it told Fannie the new policy was not valid under the $3 billion settlement signed more than a year ago over repurchase claims. The bank felt the new guidelines, which prompted Fannie to request buybacks based on mortgage insurance rescissions, conflicted with the settlement, which was made months prior. BofA told Fannie it didn't intend to make any repurchases under the new guidelines.

"If we are required to abide by the terms of the new (Fannie) policy, our representations and warranties liability will likely increase," BofA said in its filing.

A BofA spokesman said Wednesday the bank's filing characterizes the severed relationship as a mutual decision. Both sides, he said, agreed not to renew the contract.

Business from BofA accounted for 5% of Fannie Mae purchase volume last year as the bank continues pull out of the mortgage business, McFarland said.

Overall BofA production — not just loans sold to Fannie — dropped 49% in 2011 to $152 billion.

McFarland said Wells Fargo is taking its place. The San Francisco-based bank originated $357 billion in new home loans in 2011 and holds $830 million in outstanding repurchase requests from Fannie, the lowest of the largest lenders.