Bank of America Corp.'s mortgage put-back deals last year no longer appear to be the kitchen-sink arrangements they may have initially seemed, and a new settlement in the first quarter spurred anticipation of further concessions.
Overall, while mortgage buyback costs at the four biggest banking companies fell in the first three months of the year (see charts), they persisted as a major fault line in an industry struggling to right itself.
Despite agreements in December covering much of B of A's exposure to Freddie Mac and clearing out a backlog of demands to repurchase shoddy mortgages from Fannie Mae, new claims from the government-sponsored enterprises jumped 34% from the fourth quarter, to $4.4 billion of loans. The company's provision for buyback liabilities fell by more than 75% — the preceding period had been inflated by the settlements — but remained substantial at about $1 billion, about half of which was earmarked for buybacks from the GSEs.
Concurrent with its earnings report in April, B of A announced a $1.6 billion deal to cover all outstanding and potential claims from the bond insurer Assured Guaranty Ltd. About $1.1 billion was for put-backs of second-lien mortgages that B of A had already reserved for by the end of the fourth quarter. The company said Assured Guaranty represented about a third of its total home equity buyback exposure.
B of A said its estimate of the upper range of future repurchase costs from claimants other than the GSEs stayed at $7 billion to $10 billion: hits realized during the first quarter that would have meant less damage remained ahead were offset by a determination that falling home prices would amplify losses.
At JPMorgan Chase & Co., the repurchase provision increased by about a fifth, to $420 billion, above the pace implied by a projection of $1.2 billion for the full year, guidance that the company nonetheless stood by as an annual rate for the rest of 2011.
Both Wells Fargo & Co. and Citigroup Inc. allowed their reserves to decline as realized losses fell. Wells Fargo, whose reserves represent about 115 basis points of the mortgages it services for others — compared with 238 basis points to 314 basis points at its biggest competitors — has cited its comparatively low delinquency rate and narrow exposure to nonagency loans to press the case that it faces relatively little risk.
To be sure, direct repurchase provisions are not the only volatile category of losses that continue to bedevil the mortgage industry — the first quarter included billions of dollars of costs associated with foreclosures and servicing lapses. And, as with the government's
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