Bank of America Mortgages Remain a Black Hole of Disappointment

NEW YORK ( TheStreet) -- Bank of America's ( BAC) mortgage banking business lost money for a second straight quarter, dropping $1.1 billion on legal fees, fines and other "loss-mitigation expenses," the bank said Tuesday.

The bank's mortgage unit, called consumer real estate services, posted $2.82 billion in revenues. In the second quarter, it lost $13.2 billion on revenues of $1.71 billion in the second quarter.

Raymond James analyst Anthony Polini had predicted a "likely return to profitability" for the unit in a report he published earlier this month. Revenues, however, were slightly higher than the $2.75 billion he had projected. Still, they were down significantly from $3.61 billion a year ago as the bank cited various factors including the loss of revenues following the sale of an insurance unit in the second quarter.

Bank of America attributed the mortgage unit's $3.85 billion expense tab to "higher default-related and other loss mitigation expenses, mortgage-related assessments and waivers costs, which include costs related to foreclosure delays and other out-of-pocket costs that the company does not expect to recover, as well as higher litigation expense."

At Wells Fargo ( WFC), which reported earnings Monday, the mortgage banking division earned $1.8 billion, up $214 million from the second quarter, on $89 billion of originations compared with $64 billion of originations in the second quarter.

JPMorgan Chase ( JPM)'s mortgage production unit earned $493 million before taxes, compared with a pretax loss of $450 million a year ago.

Bank of America 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.

The results demonstrate 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.

-- Written by Dan Freed in New York.

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