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



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Bank of America

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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

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"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



Freddie Mac


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.

Chairman and CEO Jamie Dimon attributed the rise in claims to "timing differences," adding "we don't expect a real change in that."

JPMorgan CFO Douglas Braunstein said of the bank expects GSE-related mortgage bond disputes "we're working through that and would expect to be through that in 2012."

The executives did not address their exposure to non-GSE mortgage bond disputes other than to say they do not believe they are responsible for mortgages underwritten by Washington Mutual, which JPMorgan acquired in a government-assisted deal in 2008.

SunTrust executives said the increase in repurchase requests was "entirely due to agency related demands, most notably from 2007 vintage Fannie Mae loans."

They added that, as in previous quarters, the issues related chiefly to "borrower misrepresentation or issues with appraisals."

According to SunTrust executives, the demands "have been more concentrated in loans that have already been through the foreclosure process."

Recent requests for loan files, however, have been more skewed toward loans that are delinquent but not yet in foreclosure.

"This suggests to us that the agencies are working through the backlog of demands from prior years, which indicates that the demand increase in Q4 could be an acceleration of timing rather than growth in the overall population," the SunTrust executives said.


Written by Dan Freed in New York


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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.