Improvements to the mortgage servicing process at Bank of America (BAC) pushed costs roughly $1 billion higher over the last two quarters, CEO Brian Moynihan said Friday. The bank reported a 37% drop in first-quarter earnings from a year earlier as it continued work on solving delinquent loans and settling representation and warranties claims. But when revelations surfaced in the fall over mishandled foreclosures at BofA and other major servicers, investigations were launched and costly changes were forced upon the bank. On Wednesday, the Office of Comptroller of the Currency and the Federal Reserve announced consent orders were signed with 14 mortgage servicers, forcing them to adopt stricter oversight of their processes and establish a variety of new options for borrowers, including a single-point of contact and a “look-back” review of foreclosure actions. In February, BofA split its servicing department in two, focusing one segment on the efforts to remedy delinquent and discontinued mortgages. But in a conference call with investors Friday, Moynihan said changes began well before then. “The work took place in October, November, and December. We’ve implemented these new changes, and that’s why we’ve been adding people,” Moynihan said. Of the 1,500 employees who received pink slips this week, at least 300 will fill positions at the bank’s Legacy Asset Servicing division created in February. Also Friday, BofA said Chief Financial Officer Chuck Noski will become vice chairman and Bruce Thompson will replace him as CFO. Thompson will remain chief risk officer until a replacement is found.Gary Lynch was named global chief of legal, compliance and regulatory relations. Lynch joins BofA from Morgan Stanley, where he was vice chairman based in London. He will be based in New York and report to Moynihan. Lynch will join the company after fulfilling the terms of his garden leave. On Thursday, John Walsh, head of the OCC, said the consent orders would require “substantial expense to fix” the problems at these operations. JPMorgan Chase (JPM) said in its earnings report Wednesday the consent orders and increased servicing costs caused it to devalue its mortgage servicing rights by $1.1 billion in the first quarter. Other servicing costs came to Bank of America, the largest servicer of Fannie Mae and Freddie Mac loans. The government-sponsored enterprises charged BofA $548 million for the foreclosure delays. Fannie, Freddie and their regulator the Federal Housing Finance Agency began work in January on revamping the fee structure for mortgage servicing, in order to better align compensation for these companies with their new responsibilities. “With the increased work in mortgage servicing, ultimately you have to get paid for it,” Moynihan said. For an in-depth look into the new Bank of America legacy servicing unit, pick up the May issue of HousingWire. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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