In previous posts, we highlighted our concerns related to Bank of America’s “repurchase” demands asserted against residential mortgage loan originators. We knew that for years, BofA steadfastly refused to entertain global resolutions of its repurchase claims.
Then, beginning in early 2012 and continuing to this day, BofA became hell bent on reaching global resolutions with mortgage loan originators.
Why the abrupt about face?
We believe that while there are likely several reasons for its shift in position, those reasons do not include any desire on the part of BofA to be a responsible business partner.
Time Running Out on Countrywide Repurchase Claims
Countrywide Home Loans, having been located inCalifornia during the housing boom, required that its mortgage purchase contracts with its correspondents be governed by California law. California happens to have a relatively short statute of limitations (4 years) within which to commence an action for breach of contract claims such as for “repurchase.”
Countrywide stopped purchasing mortgage loans from correspondents in or around August of 2008. So a simple mathematical exercise indicates that, despite its too big to fail swagger, BofA has to be concerned that time has run out on most, if not all, of its pending CHL repurchase claims.Originators Should Demand to Know Actual Amount of Loss
But that is just one reason why originators should look carefully at BofA’s abrupt policy change on global settlements. As we have noted in previous articles, BofA has been fighting back against the GSE’s. For example, in early 2011, BofA settled billions of dollars of repurchase claims asserted against it byFannieMae.
While refusing at that time to offer global resolutions to originators, BofA also gladly settled with Freddie Mac on a global basis for an amount so low that it (and the FHFA, its “overseer”) were subsequently highly criticized by the FHFA’s Office of Inspector General for agreeing to the deal. Recently BofA has refused to pay Fannie Mae additional billions of dollars of pending repurchase claims.
Accordingly, in seeking to resolve a repurchase claim with BofA, an obvious question for an originator to ask is, “what is the amount, if any, that BofA actually lost on the loan?”
On the other hand, during this post-housing boom crisis, BofA has demanded payment for repurchases from its mortgage originators of 100% of the amount of its claim (which it often admits is comprised of “estimated” damages, meaning it had not then suffered any loss.)
We believe that many originators succumbed to the threats and largely unsupported claims of BofA, and went ahead and paid in full or settled with BofA on these claims.