This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank of America Sees Rise in Mortgage Bond Disputes (Update 1)

Bank of America mortgage story updated with change to headline, lede and graphic added at top of page 2.

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report), JPMorgan Chase (JPM - Get Report) SunTrust (STI - Get Report) and BB&T (BBT) all saw a rise in claims from bond investors during the fourth quarter related to troubled mortgages, suggesting banks continue to have difficulty getting past the issue even as they prepare for a long-awaited settlement of foreclosure-related disputes.

"We were expecting, as was the banking industry, that repurchase claims related to faulty underwriting practices would last a year or two when they first started to cost banks money back in 2008. Now in year three of this saga, we have seen some of those claims decline during the first three quarters of 2011, only to pop back up again in the fourth quarter," wrote Paul Miller, analyst at FBR Capital Markets, in a report published Monday.

Bank of America announced $14.25 billion in repurchase requests in the fourth quarter, larger than in any single quarter of 2011. JPMorgan's $1.59 billion in fourth quarter repurchase requests was also larger than in any quarter of the year, as was the $590 million in requests disclosed by SunTrust in the fourth quarter.

Miller attributes the rise to increased aggressiveness on the part of Government Sponsored Enterprises Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) in disputing mortgages they agreed to guarantee leading up to the crisis, as well as better coordination among investors in mortgage bonds that lacked GSE guarantees.

Steve Linick, inspector general of the Federal Housing Finance Authority, which oversees the mortgage giants, argued in a report last year the FHFA was too quick to sign off on at least one of those deals, a $1.35 billion settlement with Freddie Mac.

Since the report's publication, Bank of America CFO Bruce Thompson has said the behavior on the part of the GSEs has grown tougher, though he has not addressed the report directly.

"They have thrown over the wall some vintages...that are older than what we've seen," Thompson said during the Bank of America's third quarter conference call.

During the fourth quarter call, Thompson said there had been no change from the third quarter. A Bank of America spokesman declined to elaborate. A Freddie Mac spokesman declined to comment.

A Fannie Mae spokesman sent the following statement, declining to elaborate:

"Under our contracts with lenders, Fannie Mae has the right to seek repurchases for loans that fail to satisfy our requirements. We regularly review loans that have been sold to us, including loans that have gone into default, to determine if our standards have been met and if a repurchase request is appropriate. We do this to protect the interests of the company and to minimize losses to taxpayers. We will continue to make repurchase requests when they are warranted based on the contracts we have in place with lenders."

Spokespeople for the FHFA did not respond to requests for comment.

JPMorgan executives downplayed the increase in GSE claims on their fourth quarter earnings call.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.52 -1.90%
JPM $62.85 -1.20%
STI $41.68 -0.93%
AAPL $93.36 -1.60%
FB $116.05 -0.58%


Chart of I:DJI
DOW 17,677.25 -153.51 -0.86%
S&P 500 2,057.17 -18.64 -0.90%
NASDAQ 4,755.0480 -50.2430 -1.05%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs