Bank of America Corp., which announced a $3 billion settlement with Fannie Mae and Freddie Mac this year, told investors that elevated claims from Fannie and Freddie may cost more than previously forecast.
New demands for refunds on soured loans from the two government-sponsored enterprises are coming "in numbers that were not expected based on historical experience," B of A said Thursday in its quarterly filing. Fannie and Freddie are being "more rigid" in resolving demands, it said.
B of A's chief executive, Brian Moynihan, has booked about $30 billion in settlements and writedowns to clean up faulty mortgages at the biggest U.S. bank since succeeding Kenneth D. Lewis last year. In June the Charlotte, N.C., company said that second-quarter charges for soured loans would probably be enough to cover remaining repurchase liabilities unless the "behavior" of the two GSEs changed from previous experience.
"Yet again, another line in the sand from Bank of America turns out to be fungible," said Tony Plath, a professor of finance at the University of North Carolina in Charlotte. "I don't think it's anything nefarious, it's just that they don't know what the magnitude of losses in that portfolio will be. And until they do, none of their numbers have credibility."
Fannie Mae faces its own pressures, with the mortgage finance company reporting a $2.9 billion second-quarter loss Friday and asking for another $5.1 billion in federal aid. The company, which was seized by the government in 2008 to save it from insolvency, has drawn $104.8 billion in aid from the Treasury Department.
Fannie Mae can request a buyback if a mortgage insurer denies coverage for a Bank of America loan, even when the lender disputes the insurer's decision, according to Thursday's filing. Companies currently have three months after being denied coverage to appeal the repurchase demand and will have just 30 days starting in July 2012, Bank of America said.
"This announcement could result in more repurchase requests from Fannie Mae than the assumptions in our estimated liability contemplate," Bank of America said. The lender may not be able to resolve insurance disputes in time, meaning that "our representations and warranties liability may increase."
B of A said in a May filing that the behavior of the GSEs "continues to evolve" and that claims had increased in the first quarter. Its disclosure Thursday elaborates on that theme, said Larry DiRita, a B of A spokesman.
"We have previously disclosed that GSE behavior is evolving in a way that diverges from our long-standing course of dealing with them," DiRita said by email. "We have taken into account and will continue to closely monitor and assess the possible risks associated with these changed behaviors." Fannie spokeswoman Amy Bonitatibus declined to comment.
Moynihan is settling disputes inherited from B of A's 2008 takeover of the subprime lender Countrywide Financial Corp.
Countrywide's lax underwriting led to soaring defaults on mortgages and claims from investors who lost money after buying or insuring the loans. B of A may reach more deals, according to the filing.
