As described on TheNicheReport.com last week, the rising number of allegedly flawed mortgage loans sold to Fannie Mae by Bank of America has created a rift between these two behemoths, each of which was bailed out by the U.S. government when the American real estate bubble burst. Now, Fannie Mae is pressuring lender Bank of America to cover losses incurred by insured home loans that have defaulted, but on which the PMI company is refusing to pay.
Bank of America, to its credit, is resisting these demands, perhaps weary (and wary) of making such payments after having already entered into a multi-billion dollar settlement with Fannie only a little more than one year ago.
But the kudos to BofA end there. It is notable to those of us who regularly represent correspondents that BofA is not merely refusing to repurchase additional loans from Fannie, but is doing so on the grounds that there was no adequate reason for the PMI companies to fail to pay out mortgage insurance when these loans defaulted. This is consistent with the stance that BofA took as early as its lawsuit against Mortgage Guaranty Insurance Corporation (MGIC), but BofA nevertheless routinely makes repurchase demands to correspondents based on the mere fact that PMI (also known as primary mortgage insurance) has been rescinded. Whether it has been rescinded rightly or wrongly is of no particular concern to BofA in such cases.
This is yet another important instance of BofA taking public positions that are directly contrary to its assertions when it makes buy-back demands on correspondents. Correspondents can use this inconsistency to their distinct advantage in contesting demands made by BofA. It is also interesting, incidentally, that Fannie has now claimed that it cut off purchases from BofA, rather than BofA deciding to stop selling to Fannie.
While they sort out who broke up with whom, let’s hope that the correspondents will be given a well-deserved respite from BofA’s unfounded buy-back demands.