Bank of America, Corp will stop selling new mortgages to Fannie
Mae as the result of a dispute over the way Fannie Mae is handling repurchases.
In November Bank of America said it
would not cooperate with a new Fannie Mae policy that would require it to take
back loans if an insurer dropped coverage.
The Bank of America and the
government-controlled mortgage giant are in talks to resolve the dispute
according to a Bloomberg source but
the Bank will cut off the loan supply this month.
Bank of America told its investors last
August that Fannie Mae's policies on private mortgage insurance cancellations
or rejections might result in higher repurchase expenses for the Bank. The numbers of companies that write this
insurance have been dwindling. One of
the largest insurers, PMI Corporation, was seized by Arizona regulators last
fall and their guidelines have been tightening.
According to Bloomberg the insurers have been voiding policies for
errors including inflated appraisals or improperly documented borrower data.
Bank of America will continue to
sell its loans to Freddie Mac, the other government sponsored enterprise, and
Ginnie Mae and may keep, at least temporarily, some of the loans on its own
Bank of America has incurred what is
estimated to be $42 million in expenses from loans it assumed when it took over
the failing Countrywide Mortgage Corporation in 2008. The fallout from that
take-over is continuing and the Bank of America is involved in many lawsuits
over Countrywide's lending practices and the quality of loans those practices
produced. It was among the lenders
participating in a $25 billion settlement with federal agencies and 49 of the
states' attorneys general, and in a filing yesterday the Bank said it was "reasonably
possible" that additional losses from litigation may reach $3.6 billion.
David Felt, a former deputy general counsel at the Federal Housing Finance
Agency, the conservator of both Fannie Mae and Freddie Mac who said of Bank of
American's action, "I don't know if Fannie really cares; it's the largest
mortgage purchaser in the world, and if Bank of America turns to Freddie Mac
instead, that's like a different subsidiary of the same company."
"This decision will not affect the credit
available to our customers," Jerry Dubrowski, a spokesman for the bank, said in
an e-mailed statement. "We will rely on other sources of liquidity to continue
to ensure we are lending to our customers and supporting the housing-market
Andrew Wilson, a spokesman for
Washington-based Fannie Mae, said the company had no comment on the bank's