BofA Reversal Could Hurt Cap One, Help Chimera
NEW YORK (
) --
Bank of America
(BAC) - Get Report
's possible reversal of a tough stance on mortgage "putbacks" may hurt
Capital One
(COF) - Get Report
, while helping
Chimera
(CIM) - Get Report
and
MFA Financial
(MFA) - Get Report
, according to an analyst report Thursday.
In a research note on Thursday, Sterne Agee analyst Henry Coffey argues concessions on so called "mortgage putbacks" by Bank of America could negatively impact Capital One, which, like Bank of America has exposure "tied to mortgages originated and sold by units of acquired companies, not originally under its control." One potential mitigating factor, Coffey writes, is that the mortgages were known to be of low quality at the outset.
On the other hand, Coffey sees potential positives for Chimera and MFA, since they may be able to win concessions in disputes over MBS they bought from banks. Coffey cautioned, however, the issue is "still a long way off and hard to quantify."
At issue are mortgages underwritten by
Countrywide Financial
, which Bank of America acquired in 2008. The mortgages were packaged and pooled into bonds called mortgage backed securities (MBS) that were sold to investors, and which have dropped sharply in value as a result of the housing crisis. Several large investors in the MBS, including
Pacific Investment Management Co
.,
BlackRock
(BLK) - Get Report
and the
Federal Reserve Bank of New York
,
wrote a letter to Bank of America and
Bank of New York Mellon
(BK) - Get Report
the trustee on the MBS, saying the loans in the MBS were not properly serviced by Countrywide, and should be put back to Bank of America.
The letter argued the issues should be fixed in 60 days or Countrywide should be declared in default on its obligations. However, on Wednesday
Bank of America issued a press release stating the time period was being extended so talks could continue.
Several news organizations have characterized the news as an indication Bank of America has shifted its stance, with
The New York Times
seizing on public comments several days ago by Bank of America chief executive Brian Moynihan, who said the bank was in "hand-to-hand combat" over the MBS putback issue.
However, Bank of America says it has not changed its stance on the issue.
If the bank has indeed changed its position, it could have implications across a wide range of companies, including
Citigroup
(C) - Get Report
,
Morgan Stanley
(MS) - Get Report
and
Goldman Sachs
(GS) - Get Report
, all of which are thought to be exposed to billions in potential putbacks on MBS they sold to investors.
--
Written by Dan Freed in New York
.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.