NEW YORK ( TheStreet) -- For Bank of America (BAC - Get Report), exiting the correspondent mortgage business is a major, painful move to shrink its balance, boost capital ratios and shore-up control of its mortgage credit quality.
According to the Wall Street Journal , the nation's largest bank is planning to exit the correspondent mortgage business, through which it purchases mortgage loans originated by smaller lenders -- and then sells them -- while continuing to service the loans for a fee. According to the Journal, pink slips may be sent to as many as 1,000 employees as early as Wednesday.
|Bank of America CEO Brian Moynihan|
The move follow's Bank of America's previous decision to stop purchasing mortgage loans originated by brokers.
These are very significant changes for the company, especially in light of its Countrywide purchase in 2008. Just on Tuesday, U.S. Bancorp (USB) confirmed that one of its subsidiaries was suing Bank of America as trustee for a group of investors demanding repurchases of mortgages originally securitized by Countrywide. Also on Tuesday, the Federal Deposit Insurance Corp. confirmed it was objecting to Bank of America's previous $8.5 billion mortgage putback settlement with a group of institutional investors.Dan Frahm, a spokesman for Bank of America Home Loans, said the company had decided to exit the correspondent lending business as part of its "customer-driven strategy," intending "to sell the correspondent mortgage lending division or, if a suitable deal is not identified, we will consider other options, including winding down the correspondent lending business in an orderly manner. At this time, our correspondent lending operations continue business as usual. " The Wall Street Journal said that 46% of Bank of America's mortgage originations during the first quarter were loans purchased from correspondent lenders. Regulatory data filed with the Federal Reserve illustrates the significance of Bank of America's exit from wholesale and correspondent mortgage origination. During the second quarter, the company purchased $16.7 billion in one-to-four family mortgage loans, while selling $34.1 billion in one-to-fours. A year earlier, Bank of America purchased $39.7 billion in one-to-four family mortgage loans, while selling $64.4 billion. For all of 2010, one-to-four family mortgage loan purchases totaled $138.4 billion, while sales totaled $255.6 billion. Wholesale mortgage lending is also a major business line for Bank of America's largest competitors. According to Federal Reserve data supplied by SNL Financial, JPMorgan Chase (JPM - Get Report) purchased $17.9 billion in one to four family mortgage loans during the second quarter, while selling $37.5 billion. During 2010, JPMorgan's one-to-four family purchases totaled $84.3 billion, while sales totaled $149.7 billion. Wells Fargo (WFC - Get Report) reported $29.3 billion in one-to-four family mortgage loan purchases during the second quarter, while selling $65.4 billion. During 2010, the company purchased $172.6 billion in one-to-fours, while selling $358.7 billion. Citigroup (C - Get Report) purchased $6.6 billion in one-to-four family mortgage loans during the second quarter, while selling $9.8 billion. During 2010, Citi purchased $36.7 billion in one to fours, while selling $61.4 billion.
Philip van Doorn. To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.