BANKING

BofA escaping Countrywide to help Moynihan rebuild

BLOOMBERG FILE PHOTO/ANDREW HARRER
FOR BANK OF AMERICA CORP. CEO BRIAN T. MOYNIHAN, the Countrywide settlement could be a chance to rebuild the bank's home lending business.
Posted 1/8/13

NEW YORK - Bank of America Corp. yesterday struck deals to settle lending complaints, sell rights to service $300 billion of mortgages and repair relations with regulators. For CEO Brian T. Moynihan, it offers his best chance to rebuild the home lending business.

The firm reached an $11.7 billion agreement designed to resolve most disputes with Fannie Mae two years after Moynihan said the bank “largely addressed” the liabilities. It sold the rights to service about 2 million mortgages, and with 9 other banks, will pay $8.5 billion to end reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators.

“Resolving legacy issues allows the bank to shift attention from non-revenue-generating activities to focusing on growing business,” said Kevin Choquette, an analyst at Scotia Capital Inc. in Toronto. “You’re going from defense to offense.”

The Fannie Mae settlement covers most claims from the bank’s single biggest mortgage adversary, which had purchased $1.4 trillion in loans from Bank of America and Countrywide Financial Corp. It’s the latest effort by Moynihan to cap the damage caused by his predecessor’s 2008 takeover of Countrywide as the U.S. housing market imploded. The firm has tallied almost $50 billion in costs tied to covering refunds and litigation from faulty mortgages and foreclosures.

‘A mess’

“There’s a lot here that Brian Moynihan had to fix,” Paul Miller, an FBR Capital Markets Corp. analyst, said in an interview on Bloomberg TV. “I don’t blame any of this on the current management team. They were given a mess. And they are working their way through it as best as they possibly can.”

Bank of America’s mortgage originations plunged 37 percent to $21.3 billion in the third quarter of 2012 from a year earlier, according to newsletter Inside Mortgage Finance, as the bank slumped to fourth from first when it acquired Countrywide. The bank’s reduced role has benefited Wells Fargo & Co. and JPMorgan Chase & Co., the two biggest originators, which have enjoyed wider profit margins.

The settlement paves the way for the bank to have a “regular relationship” with Fannie Mae, after the government- backed agency last year cut the company off from funding for new loans, Vipul Jain, an analyst at Morgan Stanley, wrote in a report yesterday.

Bank of America also sold the rights to service $215 billion of home loans to Nationstar Mortgage Holdings Inc. and $93 billion to Walter Investment Management Corp. The number of delinquent loans that Bank of America services will drop by 30 percent, according to Jain.

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