In total, Bank of America saw almost $5 billion of requests to buy back loans in the first quarter, including almost $2 billion from Fannie and Freddie.
The bank now faces a total of just over $16 billion of so-called putback claims.
The claims are arising much fast than Bank of America is able to deal with them—either by settling with the claimants or defeating them in courts. As a result, the outstanding number of claims—and potential liability—just keeps on climbing.
Bank of America has always promised to fight the claims it believes are unwarranted. And last year it succeeded in having many of the claims rescinded.
But in the first quarter of 2012 something strange happened. The claims came in at near record numbers, with claims from 2006 vintage mortgage deals the highest ever, but both rescissions and payouts fell. This may indicate that Bank of America or its counterparties are digging in for a longer, harder fight.
The number of private-label claims—that is, those not filed by bond insurers or government-sponsored entities—is climbing. This could be troubling news for Bank of America since the private label folks might be more motivated to press for higher settlement amounts.
Bank of America also had a questionable tone in a presentation accompanying its earnings news.
“The GSEs’ repurchase requests, standards for rescission of repurchase requests and resolution processes continue to be inconsistent with the GSEs’ own past conduct and our interpretation of our contractual obligations,” Bank of America complained.
Well, sure. Although bond insurers and investors in mortgage bonds have always had the right to demand repurchases of mortgages that don’t meet the representations and warranties made by Bank of America, this became a much bigger issue following the financial crisis. It really only took off after 2010. The standards are still developing. To expect that GSEs to remain consistent in changing times is a bit ridiculous.
What seems certain is that a cloud of uncertainty will hang over Bank of America thanks to the potential of legal liability for bad mortgages. Earnings can keep improving but there may be little management can do to bury the past once and for all.
John on Twitter. (Market and financial news, adventures in New York City, plus whatever is on his mind.) You can email him at email@example.com.
We also have two NetNet Twitter feeds. Follow
CNBCnetnet for the best of the days posts, including breaking news. Follow
NetNetDigest for a feed of every single post each day.
You can also be our friend on Facebook. Or subscribe to John's Facebook page.
We're on Google Plus too! Click here and add NetNet to your circles. And here is John's Google+ page.
Questions? Comments? Tips? Email us atNetNet@cnbc.comor send a text message to: 9170740-8477.
Call us at 201-735-4638.