Bank of America Mortgage Back in Black in 3Q: Analyst

NEW YORK ( TheStreet) -- Bank of America ( BAC)'s mortgage banking business is expected to have returned to profitability in the third quarter following a $13.2 billion loss in the second quarter.
The bank will shutter its correspondent lending unit.

Raymond James analyst Anthony Polini sees a" likely return to profitability" for the unit, according to a report he published Friday. While Polini did not include a specific earnings projection in the report for the unit he did predict revenues of $2.75 billion, which would be 60% higher than the $1.71 billion posted in the second quarter. Polini did not give a reason for the increase, though Eric Stoddard, a senior Wells Fargo ( WFC) mortgage executive, recently told TheStreet in an interview that the overall mortgage market is growing as a result of record low interest rates.

Still, Bank of America's mortgage business is a long way from out of the woods. The second quarter loss came as the result of a proposed $14 billion settlement over problem mortgage securities with a group of large investors that includes Pimco, Blackrock ( BLK), Goldman Sachs ( GS) and the Federal Reserve Bank of New York. New York State Attorney General Eric Schneiderman has challenged the settlement, however, arguing the trustee for the securities, Bank of New York Mellon ( BK), which approved the settlement, had a financial incentive to go easy on Bank of America.

BNY Mellon has disputed that charge. Further, several investors opted out of the settlement, and Bank of America faces other mortgage-related headaches and lawsuits, including a $10 billion claim from AIG ( AIG) and a shareholder lawsuit that could be worth as much as $50 billion related to the acquisition of Merrill Lynch.

Bank of America made a $630 million profit in its mortgage banking unit in the first quarter, though that number was also reduced due to a $487 million increase in provisions against potential mortgage-related legal claims.

The bank recently announced it will exit the business of acquiring mortgages for other banks, giving up $180 billion in volumes--roughly half last year's total.

-- 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.

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