Bank of America to repurchase $330 Million in Home Loans From Freddie Mac

This is from Pipeline Press at Mortgage News Daily:

In an interesting move, in May Bank of America will repurchase $330 million of home loans from Freddie Mac “after flaws were found in how they were created.” In a story from Bloomberg, the facts seem to be that the payments on the “vast majority” of the loans are current but that BofA agreed to the refunds “because the valuation method used at origination did not meet the investor’s technical requirements.” Freddie Mac and Bank of America announced a $1.28 billion settlement in January 2011 over bad loans sold through 2008 by Countrywide. Bank of America’s backlog of pending demands for refunds on soured loans reached a record $16.1 billion in the first quarter as a dispute deepened between the bank and Fannie Mae. Fannie stopped accepting new loans from Bank of America in January.

From an investor’s viewpoint, this is an interesting development. Freddie provided a list of pools for which the share of balance to be bought-out exceeded 5%.  These pools represent a total outstanding balance of $1.3 billion and the net buyouts on these pools add up to $330 million. Further, the affected pools were mostly issued in 2010 and 2011, the pools are originated entirely by Bank of America, and the buyouts span 30-yr, 20-yr, 15-yr, as well as ARMs. Freddie Mac had mentioned a change in its rep and warranty sampling methodology in its latest Q1 filing, and Barclays Capital suspects these rep and warranty buyouts may be related to its new sampling system. Barclays points out that the buyout does raise some questions. “1) If these are rep and warranty repurchases on post HARP loans originated under a fairly tight underwriting regime, then they will generate concerns around buyouts on newly originated loans. This will especially true for higher SATO and HARP loans. 2) Though this round appears to be entirely targeted at Bank of America issued pools, it is unclear if other originators are being targeted. 3) It is also unclear if this is a one time-issue or a process that will be revisited at some regular interval. 4) Another concern would be whether similar buyouts are being considered or being implemented at Fannie Mae.


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