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Will Bank of America Rally in 2011?

NEW YORK ( TheStreet)-- Bank of America (BAC - Get Report) looks ugly, yes, but when does it get to be too cheap to pass up?

That's the question analysts and investors have been asking since October, when it finally sunk in that housing-related legal challenges were likely to cost tens of billions of dollars and that Bank of America appeared to be on the hook for most of it as a result of its acquisition of Countrywide Financial in 2008.

Bank of America
Bank of America could be set for the upside.

Countrywide was one of the most aggressive actors out there when it came to making home loans that were unlikely to be repaid. The lender appears to have ramped up its mortgage operation just as the housing market was at its frothiest. Countrywide was the top U.S. mortgage originator with $463 billion in 2006, followed by Wells Fargo (WFC - Get Report)at $398 billion, with JPMorgan Chase (JPM - Get Report)a distant third at $173 billion, according to data from trade publication Inside Mortgage Finance that Countrywide cited in its 2007 10-K.

In 2007, however, Wells Fargo cut its originations way back to $272 billion. That was still good for second place, but well behind Countrywide's $408 billion in originations. Also worth noting is that Bank of America's own mortgage unit, which wasn't among the top five originators in 2006, showed up at No. 4 in 2007 with $190 billion in originations. Add that to the $408 billion from Countrywide and you get nearly $600 billion in mortgages originated in the last year of the housing bubble.

Look at the last three years of the housing boom and the picture may be even starker. From 2005-2008, Bank of America sold more than $2 trillion in residential mortgage loans--$1.12 trillion of which were backed by government sponsored entities Fannie Mae (FNMA.OB)and Freddie Mac (FMCC.OB) and another $963 billion of which were guaranteed by private entities in what are known as "private label" deals, according to Deutsche Bank research.

By contrast, Wells Fargo, the second most active residential lender, sold about $715 billion worth of home loans during that same period, and the numbers drop steeply from there. Citigroup (C - Get Report), the fourth-largest lender from 2005-2008, originated some $338 billion worth of home loans.
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