Loan Repurchase Liability Balloons For BofA

About a year ago, we discussed how much Bank of America appeared to be flailing about in its attempts to get its rams around its total exposure to loan repurchase demands by Fannie Mae. According to a recent Housing Wire article by Jon Prior, the "bid-asked gap" between Fannie Mae and BofA on the total amount of repurchase liability is pretty large. So large, it appears, that BofA is telling Aunt Fannie, "Sue Me!"

The bank and the government-sponsored enterprise disagree over $7.9 billion in mortgages Fannie claims BofA should buy back because of faulty origination practices, up from $3.7 billion at the end of last year. The bank said it should not have to buy back the loans because borrowers made at least 25 monthly payments on them.

The claims stem from mortgages originated in 2006 and 2007, BofA Chief Financial Officer Bruce Thompson told investors Wednesday.

"We clearly have a disagreement," Thompson said. "Either they bring an action or there would be a settlement. Those would be the two ways this would get resolved."

Throw Freddie Mac into the mix, and repurchase claims rise to $11.1 billion. That's a chunk of change, even if BofA has already reserved $15.9 billion for repurchase claims. Moreover, private label investor claims are also growing, nearly doubling to $8.6 billion. Working through this mess has been painful (costing the bank $2.6 billion in the last quarter) and it's obvious that the pain for BofA will continue for some time to come.

Several years ago, Francine McKenna was berating the large audit firms for not raising the red flag regarding loan repurchase risks. I'd been raising the red flag on this blog as far back as 2005. Maybe we were both more lucky than smart (certainly that's true in my case). On the other hand, if even a quarter-wit like the author of this blog saw this iceberg looming in the distance, you have to wonder how the Masters of the Universe who ran one of the world's largest financial insitutions acted like the crew of the Titanic and ran headlong into it.