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Bank of America to Mortgage Originators on Buyback Claims: “Heads I Win, Tails I Still Win”

Financial Services Blog

Financial Services Watch Blog
March 04, 2012

Bank of America (aka BofA) has decided to stop selling mortgages to Fannie.

(Check out David Benoit’s recent Wall Street Journal blog post.)

This development underscores yet another reason why mortgage loan originators should be extremely hesitant to enter into big-dollar “global” settlements with BofA.

Estimated Future Losses

A large component of the “damages” that BofA typically seeks in a global settlement is what it calls “estimated future losses.” That is a really dubious category to begin with, and now BofA is sending a strong signal that it is not inclined to buy back more loans from Fannie Mae, meaning that it should not have significant “future losses” related to buyback claims by that GSE. BofA is also vigorously contesting buyback claims by private label investors, so it is hard to see where the “estimated future losses” are going to come from.

A full array of defenses for loan originators

We applaud BofA’s tougher stance against what are generally very weak claims, but find it fascinating that BofA is, once again, taking one set of positions when it is defending itself against buyback claims, and a directly conflicting set when it seeks to prosecute such claims against originators. BofA should be well aware that the originators have at their disposal the full array of defenses that BofA is now wielding against buyback claims asserted against it, plus several more.

After all, it was BofA, not the originators, that in almost every instance established the loan program criteria for the loans which now have the GSEs and private MBS investors so up in arms.

Philip R. Stein

Philip R. Stein

Partner, Litigation Practice Group Leader
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