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Bank of America, seeking to punish those who want to hold them accountable, will stop selling new mortgages to Fannie Mae, something that Fannie is supposed to be hurt by, I guess. Notice the lack of the words “Freddie Mac” in that last sentence I wrote.
The latest move represents a major escalation in a protracted legal battle over how many defaulted mortgages Bank of America will have to buy back from Fannie because the original loans had not conformed to proper underwriting standards, market experts said [...]
Bank of America was Fannie’s third-largest provider last year, according to Inside Mortgage Finance. The bank originated $156.1 billion in mortgages last year, of which $37.7 billion were sold to Fannie, the trade publication said.
Bank of America insisted its customers would not be hurt by the decision, and said it can make up for the loss of Fannie as a backer by turning to Freddie Mac or Ginnie Mae, other government-sponsored mortgage buyers; the private sector; and by deploying its huge balance sheet.
“This decision will not affect the credit available to our customers, and we will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing market recovery,” said Lawrence Di Rita, a spokesman for Bank of America. He added that the bank would continue to participate in assisting homeowners, including through the federal government’s loan modification program.
Let’s do some backstory here. One of FHFA [Federal Housing Finance Agency] chair Ed DeMarco’s good qualities is that he has stepped up forced repurchases of bad loans that the banks misrepresent – either with a lack of documentation or poor underwriting standards – when selling to the GSEs [government sponsored enterprises]. DeMarco actually reached a deal back in January 2011 with BofA to receive $2.5 billion as compensation for bad loans, but there was a rider in the deal that allowed Fannie to sue for further claims. In addition, FHFA has sued seventeen banks, including BofA, in an ongoing repurchase case.
According to BofA, this is based on a new rule that Fannie has decided to enforce:
Bank of America told investors in August that Fannie Mae’s policy on insurance rejections may result in higher repurchase costs. Fannie Mae typically requires a borrower to buy mortgage insurance if the loan exceeds 80 percent of the home’s value. The coverage guards against losses when borrowers default and foreclosure fails to recoup costs.
Mortgage guarantors, including MGIC Investment Corp., Radian Group Inc. and American International Group Inc.’s United Guaranty, have been voiding policies for errors including inflated appraisals or borrower incomes.
The larger point here, as Yves Smith highlights, is that BofA’s loan originations are still pretty bad, hence the mortgage insurance issue. It’s not so much about Fannie enforcing a mortgage insurance policy as it is BofA failing a bunch of mortgage insurers on origination issues. That’s why they have an ongoing problem with Fannie over repurchases. If I’m Fannie Mae I’m pretty happy my counterpart, Freddie Mac, will have to be the one to deal with BofA’s crap loans now. But since they have the same overseer, it’s completely puzzling why FHFA would allow that to happen:
Of course, the other question is where is the FHFA? If Fannie thinks this is bad enough that it is staring BofA down to the point that the bank has cut loan sales from 21% of Fannie’s volume in 2009 to 3% in 4th quarter 2011, why should Freddie pick up the volume? [...]
BofA is trying to blame Fannie, when in fact it appears the mortgage insurers have changed policies while nothing may have changed at Fannie. Is it just easier to blame the GSEs as one of the least loved brands in America? And the other bit that is open to question is the actions of the mortgage insurers. Even though they are not exactly an upstanding bunch, if BofA really is presenting loans to be insured with bogus appraisals, even scummy guys can be in the right now and again.
I think the other takeaway is that the mortgage industry remains a total mess, years and years after the housing bubble. This is why you don’t let offenders go without accountability.
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Thanks to SD who posted the link over at the “Diner”. Everyone should take a look and everyone has the potential of being that friction.
http://therealnews.com/t2/component/hwdvideoshare/?task=viewvideo&video_id=73076
I’m with Yves. If these crap mortgages are that toxic, WTF would Freddie take ‘em?
Unless they were told to do so. There’s only two choices for that service Fannie and Freddie. If a bank were cut off from both of them, I think that bank would quickly stop writing mortgages. Pull BofA out of that market, you hurt people. Including campaign contributors and banksters.
ObamaLLP is desperate not to have to seize Bofa, they’ll cut a lot of slack to avoid that.
Boxturtle (And never forget that Citi is lurking out there, too)
When BoA’s criminal enterprise is not prosecuted and the illegal MERS (owned by the banks)loan processing continues the disenchantment grows. I would change the tittle of this post to read
Fannie Mae forces BoA to clean up their act if they want to do business with them: BoA refuses.
NOthing like closing the barn door AFTER the horses already escaped.
Fannie Mae’s policy requires Full loan repurchases if a mortgage insurer drops coverage (insuring the amount of the loan above 80% loan to value), the insurers being MGIC Investment Corp., Radian Group Inc. and American International Group Inc.’s United Guaranty, who are dropping the insurance on the over 80% LTV piece on loans where they have found inflated appraisals or borrower incomes.
FHA has strict rules on appraisals or borrower incomes, and Ginnie Mae, a company that packages loans backed by the Federal Housing Administration, will take the BofA loans approved by the FHA.
If BofA can sell into Ginnie May those are good loans, and the Fannie May position is crap – just doing the GOP “trying to save money for the taxpayers” that is the reason for not doing principle reductions.
I suspect there is a middle ground – that you will never find at Susan (Yves) site – as this looks like a power play over the old Countrywide loans and the estimate of the number that will be put back because of Countrywide’s bad numbers for appraisals or borrower incomes – BofA has one number and Fannie May another. I doubt there is a current problem and indeed I doubt BofA has a problem with Fannie May’s new rule. But then on the theory that Susan (Yves)’s 1 million visitors per month to her site’s $500,000 ad income from those visits is a bigger number than the zero I get for posting, when plugged into the “you get what you pay for” theory, means she has better information, I defer to her wisdom.
I await some number from Susan (Yves) as to the current insurance termination rate and the recent changes in that rate at MGIC Investment Corp., Radian Group Inc. and American International Group Inc.’s United Guaranty, by originating bank.
You diatribe appears to be axe grinding against Yves (Susan), and replet with no facts nor any analysis.
You also appear cognitively impaired, as the statement is that BofA will sell no new loans to Fannie Mae, and you state “s this looks like a power play over the old Countrywide loans”.
I feel for you. Is this a birth defect, something you have learnt, or are you paid for this drivel??
Fannie, among other activities, bundles those mortgage notes in to RMBS that feed the repo market.
The repo market is part of the super-secret Shadow Banking System (SBS), the system that in real life, keeps the world economy afloat by providing day-to-day liquidity.
It has been reported that the median security value of collateral offered in the repo trade is 43% and probably falling, but who would know because they aren’t required to tell us?
From Robert Grossman, Martin Hansen, Kevin D’Albert, and Viktoria Baklanovaby, Fitch Ratings, February 3:
So the SBS is routinely loaning short-term money against collateral they value at 43% of face value because, I’m assuming, of questions about the value of, say underlying mortgages (if the collateral is RMBSs).
So BoA refusing to sell it’s new mortgages to Fannie may be an injury because Fannie will be able to create less RMBSs, and thus have less collateral to leverage on the repo market, but if the quality of those mortgages is increasingly in question, and the momentum seems to be in that direction, then the whole story may amount to yet more spin, smoke and mirrors and blame-shifting on the part of banks, in this case a bank acknowledged to be one of the weakest ‘players’.
Now consider that the same process is playing an unacknowledged role in the European ‘debt’ crisis;
The European banks are also borrowing money in the repo market, using bonds they’ve purchased from European countries, but also RMBSs they purchased, often from US banks.
The value of those securities, both bonds and RMBSs are increasingly in question as economies shrink and real-estate prices fall.
And so far, everyone is still pointing fingers at the lazy Greeks and refusing to even talk about the SBS and it’s repo market’s place in the story?
I won’t mention the CDS market that pretends to insure this house of cards won’t collapse, and that everyone pretends doesn’t matter because the ‘net’ exposure is small, even thought there is no real way to know what the actual result of all that netting would/will be.
Bravo!
I’m sure glad that I’m not the only one to notice this troll-like behavior.
LMAO
You obviously know nothing about internet ad metrics (CTRs, CTR, PPC, PPV, etc) if you think that a site that receives 1 million visitors per month gets anything approaching a half-million dollars a month (or probably even a year) in ad revenue.
Just out of curiousity, what would the ad revenue be for a site like Yves’? Got any guesses, any rule-of-thumb?