Bank of America’s long-running relationship with Fannie Mae ended late last week, when the bank announced that it would no longer sell new mortgages to the GSE.
According to a New York Times overview of the split, tensions were running high between the two financial firms regarding how many defaulted mortgages BofA would need to buy back from Fannie because of faulty underwriting.
Guy Cecala, publisher of the Inside Mortgage Finance trade publication, said the enormity of BofA’s decision cannot be overstated.
“In mortgage circles, it’s pretty big,” Cecala said in the Times article. “It would be fairly extreme for a small or midsized lender to do this, but for a major lender, it’s very extreme.”
Even though BofA was Fannie’s third-largest provider in 2011 (to the tune of $37.7 billion in mortgages), the bank is assuring its customers that it can simply switch to another GSE, such as Freddie Mac or Ginnie Mae.
“This decision will not affect the credit available to our customers, and we will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing market recovery,” said Lawrence Di Rita, a spokesman for Bank of America, in the Times piece.
BofA’s decision, though, does come at a rocky time for the bank. Once the nation’s largest bank by assets, BofA now ranks second to JPMorgan Chase, a fall the Times chalked up to the bank’s ill-fated purchase of Countrywide Financial, the lender that has saddled the bank with more than $30 billion in losses from poorly advised (if not illegal) boom-era subprime loans.
In addition, investors remain skittish that Fannie will force BofA to purchase faulty mortgages beyond last year’s $2.5 billion agreement (the bank’s stock fell to below $5 a share at one point in 2011), and customer-ratings of the bank’s performance have never been worse.
In the Times piece, Cecala said that though the mortgage terms and rates for BofA may become less competitive, “consumers should not feel the effects of the move in terms of access to credit,” the report stated.
An article in The Economic Times, though, framed the economic divorce on much laid-back terms, seeing BofA’s defection as having little impact on the mortgage market.
“The move does not mean a lot to the mortgage market, because Bank of America provided only 3 percent of the loans Fannie bought in the fourth quarter of 2011 and the bank still plans to sell mortgages to Freddie, or hold them on its own books,” the article stated. “It also does not mean much to Fannie, which can buy loans elsewhere.”
Ultimately, the bank’s move is more symbolic than anything, the article stated, and given that no other banks have followed suit, the markets should be unaffected by the transition.
“If one lender does this, I’m not real concerned,” said John Taylor, chief executive of the National Community Reinvestment Coalition, in the article. “If a number of lenders do this, that’s a real concern.”
UPDATE: Fannie Mae has now come out and said that it dumped Bank of America, not the other way around.