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Bank of America Lowers Reserves in Response to Buy-Back Demands

Philip R. Stein

Hard Stance?

Bank of America has lowered its reserves established for payments in response to mortgage buy-back demands. The announcement, coming in the banking giant’s quarterly earnings report, indicates BofA set aside less money in the first quarter of 2012 to cover the cost of “repurchase” demands than it had at any time since the housing bust.

BofA has taken a hard stance against buying back allegedly deficient loans from Fannie Mae, which in turn has soured a relationship that once pumped as much air into the housing bubble as any other (the relationship between Countrywide and FNMA, before the former crumbled into BofA).

The move is significant but not surprising – significant because the bank has put its money where its mouth is, but not surprising in light of recent comments by bank officials previewing a harder line. Some of the bank’s Too Big to Fail brethren have been taking a similar position of late.

Originators Should Ask Questions

As previously noted, the banks seem comfortable talking out of both sides of their mouth. When they come making demands on originators for the very same loans they refuse to repurchase, for the very same reasons they refuse to repurchase them, originators should respond in kind.

Originators should be asking the TBTF banks a lot of questions before ever putting buy-back money on the table.  Given the big banks’ publicly-avowed staunch refusals to buy back loans from their investors, originators may well expect the big talk of the big banks to be replaced by the sounds of silence when the banks are asked to show damages in support of their claims against originators – which, of course, would consist largely if not exclusively of payments made to repurchase loans.

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