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Bank of America

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cleared up one item that had been weighing on its stock when reporting quarterly results on Tuesday: Mortgage buyback demands are nowhere near the $70 billion figure

a hedge fund had been tossing around.

BofA reported that mortgage buyback demands are less than $13 billion as of Sept. 30.

However, CFO Chuck Noski outlined some information that will keep investors scratching their heads about the firm's total liability. The details came hours ahead of a report regarding private investors' repurchase requests that helped push Bank of America's stock down sharply.

On a conference call Tuesday morning, Noski expressed comfort with estimates related to government-sponsored enterprises (GSEs)

Fannie Mae



Freddie Mac


. But he noted that numbers for monoline insurers and private label investors were difficult to pin down, due to litigation and fewer requests to-date.

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Noski characterized Bank of America's experience with monoline insurers so far as "episodic" and "all over the map." He added that it was "not possible to reasonably estimate" exposure to private-label buyback requests because Bank of America has had only limited experience with a motley crew of litigious counterparties.

On Monday, a group of institutional investors represented by Gibbs & Bruns LLP said they had sent Bank of America a letter asking that it repurchase $47 billion worth of MBS. On Tuesday afternoon, a


report indicated that the Federal Reserve Bank of New York, Pacific Investment Management Co. (PIMCO),


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may be among those seeking buyback relief.

The buyback issue has gained traction in recent months. Large mortgage lenders, including Bank of America,

JPMorgan Chase

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Wells Fargo

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, have boosted reserves to cover related losses, even as firm-wide reserves drop by billions. Last week, JPMorgan said it had added $1 billion to reserves against mortgage repurchases, having faced $1.5 billion in related losses during the September quarter.

The buyback issue hinges on similar errors as the documentation mess that has crippled the foreclosure process in recent weeks - but at the point of origination rather than default.

When banks sell MBS or whole loans to other parties, they enter contracts - in most cases pledging that the information therein is accurate and that banks have told investors what they're getting into. Those contracts have "representations and warranties," which require banks to repurchase the debt if there has been some kind of error. As mortgage debt continues to turn sour, investors have been sifting through documents to find such errors and pass bad debt back to lenders.

GSEs, which dominate the MBS market, have been the most aggressive in pushing back souring debt. More than half of BofA's $12.875 billion in outstanding repurchase requests come from Fannie and Freddie. Roughly one-third comes from monoline insurers, which have exposure to mortgage troubles because they "wrap" debt for private investors, effectively providing guarantees against loss. The remaining buyback requests come from private investors who either bought whole mortgages outright or partnered with others to invest in private-label securitizations.

Noski attempted to put the large figures in context on Tuesday, pointing out that the current Bank of America franchise - including Countrywide Financial - sold about $1.2 trillion worth of loans to the GSEs from 2004 to 2008. Through September, Bank of America has agreed to buy back just $11.4 billion, resulting in a $2.5 billion loss.

However, new claims have piled up in recent quarters and the government

appears to be getting frustrated with banks' refusal to buy back mortgage debt.

"One of the drivers of our provision this quarter is an expectation that our repurchase rate with the GSEs will increase," said Noski. He noted that longstanding experience with the GSEs and sorting through $18 billion in requests to-date has helped Bank of America estimate future exposure to GSE buyback demands.

Perhaps less certain is BofA's exposure to the monoline and private-investor demands.

Roughly $160 billion of mortgage debt - whole and securitized, first-lien and second-lien - had been backed by monoline insurers from 2004 to 2008. Insurers have requested that Bank of America buy back $4.8 billion worth of debt, $550 million of which was approved and $1.5 billion of which is still in review. The other "rep & warranty" claims have been rejected.

Two of the largest monoline insurers,


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, are suing Bank of America over thousands of claims, saying the vast majority of mortgages purchased didn't adhere to purported underwriting guidelines. Noski said the litigation has "further constrains a normal business relationship" and has limited communication between the parties.

"Without this engagement, we believe it is not possible at at this time to reasonably estimate future repurchase experience and therefore the liability that may exist in connection with these securitizations," said Noski.

As far as private investors go, Bank of America sold about $750 billion in mortgage debt to such entities, received $3.9 billion in buyback requests and taken $2.9 billion worth of loans back. Most of the requests have come from whole-loan investors. It's been difficult for the array of counterparties to private-label securitizations to all get on the same page, much less prove that there's a reason to buy back the debt.

Noski hinted that the few such claims Bank of America has received have been haphazard and unsustainable. He noted that a judge dismissed one case because the plaintiffs didn't obtain the minimum necessary percentage of bond holders' voting rights to take action. Another group of eight investors have contacted Bank of America over 115 deals, but Noski said management has "a number of questions about its content including whether these investors actually have standing to bring these claims."

"However," he noted, "until we have a meaningful repurchase experience with these counter parties, we believe it is not possible to reasonably estimate this exposure."

All told, Bank of America estimates that it has $4.4 billion in buyback liabilities as of Sept. 30. Its reps & warranties provision stood at $872 million, down sharply from the $1.2 billion from the second quarter but elevated from the $500 billion range it had been in previous quarters. Noski warned that as the buyback saga continues, that number could remain "lumpy" in the quarters ahead.

-- Written by Lauren Tara LaCapra in New York


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