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Bank of America's Mortgage Problem Seems Far Worse Than Expected

Bank of America branch, New York City.
Oliver Quillia for

Bank of America liability to Fannie Mae and Freddie Mac for troubled home loans may be much higher than expected.

In a filing Thursday, Bank of America said the cumulative, total cost of buying back mortgages from Fannie and Freddie is already as high as high as $7.8 billion.

The bank has been adding to its reserves for liability to the GSEs.

The bank says that declines in home prices and more aggressive demands from the GSEs have lead to increased costs.

The bank has been buying back mortgages that didn't live up to the contractual representations and warranties it made when selling the mortgages. Many of them were originated by Countrywide Financial, the lending business Bank of America bought in 2008.

“Notably, in recent periods we have been experiencing elevated levels of new claims, including claims on default vintages and loans in which borrowers have made a significant number of payments (e.g., at least 25 payments), in each case, in numbers that were not expected based on historical experience," the bank said in an SEC filing.

"Additionally, the criteria by which the [government-sponsored enterprises] are ultimately willing to resolve claims have become more rigid over time,” the bank said.

The filing was first reported by Bloomberg.

Editors Note: An earlier version of this story claimed that Bank of America had underestimated its liability. A spokesman for the bank insists that reserve amounts were not meant to be estimates of future liability and that the bank has never publicly estimated its total liability to the GSEs.

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