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Bank of America Slashes Mortgage Business: Report

NEW YORK (TheStreet) -- For Bank of America (BAC), 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) 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) 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) 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.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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