Make us your home page

Bank of America's refund backlog hits record high

Bank of America's backlog of pending demands for refunds on soured loans reached a record $16.1 billion as a dispute deepened between the second-largest U.S. lender and Fannie Mae.

Outstanding claims rose 28 percent in the first quarter from $12.6 billion in the last three months of 2011, the Charlotte, N.C., bank told investors this week. At the same time, the company set aside less than $300 million to cover repurchases for a third straight quarter, helping the mortgage unit post a narrower first-quarter loss.

"You'll see those numbers pile up, and they won't reserve for them," said Paul Miller, an analyst at FBR Capital Markets. "Ultimately, my guess is that Fannie Mae takes Bank of America to court. If they lose that lawsuit, where does that leave them on reserves?"

At stake for chief executive Brian Moynihan is the ability to limit further losses after the firm booked more than $42 billion in costs tied to defective loans. Buyers and insurers of mortgage securities have demanded that the lender compensate them for shoddy loans created by Countrywide Financial, acquired by Bank of America in 2008.

The dispute revolves around mortgages created by the bank and Countrywide and sold to investors with a promise to buy them back if data on borrowers, their income or the property later turned out to be false. The increase in demands for buybacks was driven by Fannie Mae and private investors who refused to participate in an $8.5 billion settlement last year.

Fannie Mae, seeking to defray its U.S. bailout, stepped up pressure last year by saying that Bank of America must repurchase loans if a mortgage insurer drops coverage included in the original sale. Bank of America refused, and in January, Fannie Mae cut the company off for funding new loans.

Almost 90 percent of the $4.7 billion in fresh claims were for loans from 2007 or earlier, before the worst of the housing crunch and economic slump. Bank of America chief financial officer Bruce R. Thompson has said this shows outside factors such as the recession were to blame, not bad underwriting, because borrowers kept up with payments for years before defaulting.

"We obviously continue to have a disagreement with them about whose responsibility those are," Thompson said Thursday. "The sustainability of what we are accruing is appropriate given what we think we owe."

Miller, a former examiner for the Federal Reserve Bank of Philadelphia, said he hadn't heard another large bank use that argument as a reason to reject repurchase demands.

The $16.1 billion in claims doesn't include $3.1 billion in demands from investors who Bank of America says don't have standing to force loan investigations, the firm said.

Bank of America's refund backlog hits record high 04/20/12 [Last modified: Friday, April 20, 2012 11:04pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Bloomberg News.

Join the discussion: Click to view comments, add yours

  1. United Airlines CEO to investors: We'll be more focused on customers


    CHICAGO — The CEO of United Airlines assured shareholders Wednesday that the company is doing all it can to be more customer-friendly since video surfaced of a passenger being violently ejected from a plane last month.

    Chicago Police arrest protesters after they sat down in a busy street blocking traffic outside a United Airlines shareholders meeting Wednesday, in downtown Chicago. The people who were arrested were protesting the low pay of employees of companies that provide meals and other services for United Airlines at Chicago's O'Hare Airport.
[Associated Press]
  2. Humana adding 200 telemarketing jobs in Tampa Bay

    Economic Development

    TAMPA — Health insurance company Humana Inc. is hiring more than 200 workers in Tampa Bay. The Louisville, Ky.-based company said Wednesday that the new positions will focus on phone sales for Humana's direct marketing services department.

  3. Tampa Bay home prices still soaring amid tight supply

    Real Estate

    Sales of Tampa Bay homes dropped in April but prices surged yet again as Florida's real estate market continued to be defined by tight supply and high demand.

    The historic Century Oaks estate overlooking Clearwater Harbor has sold for $11.18 million, the most ever paid for a home in the Tampa Bay area. [Courtesy: Coastal Properties Group]
  4. These days, don't hit the theme park without an app and a phone charger


    Emile Crawford stocks two back-up phone battery chargers these days when she takes her kids to Disney World. But she dare not venture into a theme park without a smart phone app, an accessory becoming as necessary as sunscreen in Florida theme parks.

    A wristband visitors will wear at the new Volcano Bay water park in Orlando, Florida. The wristband, called Tapu Tapu, tells you when it's your turn to get on a ride. It also lets you pay for food so you don't have to carry a wallet and opens lockers so you don't have to  carry a key. (Universal via AP)
  5. James Cameron, Zoe Saldana and more appear at Disney's Pandora


    ORLANDO — As he stood on a stage at Disney World Wednesday, director James Cameron revealed his teenage dreams.

    Zoe Saldana tweeted a photo of herself from Wednesday's appearance at a new land in Disney's Animal Kingdom, Pandora -- the World of Avatar. The land is based on James Cameron film, in which she stars. Photo via Twitter.