Friday, August 3, 2012

Bank of America Corp (NYSE:BAC), Fannie Mae in Talks to Resolve Bad Loans Quarrel

State-owned mortgage provider Fannie Mae is in talks with the No.2 bank in the United States, Bank of America Corp (NYSE:BAC), to search for a solution to a dispute involving bad mortgages, Reuters said quoting a source on the matter.

Between 204 and 2008 at the height of the U.S. housing boom, Bank of America and its unit Countrywide Financial sold billions of dollars’ worth of mortgages to Fannie Mae, which now wants to sell it back.

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The bank has, of course, not been keen on taking back the loans that it sold. Reuters said that the bank has in recent quarters said that the loans which Fannie Mae was asking it to repurchase were as recent as two years back.

It also said that the bank's contention was ta the loans had gone bad due to adverse economic conditions rather than poor underwriting or lack of proper documentation which are common causes for repurchase.

The bank made a quarterly filing on Thursday where it said in relation to the request that of its $10.1 billion in unresolved claims with Fannie, $7.3 billion related to loans in which the borrowers have been paying for more than two years, Reuters reported.

The dispute has soured relations between the two financial services institutions with Fannie Mae not renewing a contract to buy home loans from the bank in January, the report said.

Reuters said that both the companies declined to comment on the news. In a quarterly filing in May, the mortgager had said it continued to work with Bank of America to resolve the issue but had not changed its estimates of the amounts it ultimately expected to collect from the bank.

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Both mortgagers Fannie Mae and Freddie Mac have been asking other banks too to buy back more loans, but the problem is most acute for Bank of America, which got a substantial chunk of toxic loans from Countrywide, which it purchased in 2008.

Shares of BAC closed lower 0.55% to $7.18 on Thursday.

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