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Bank of America Fights Pressure on Mortgages

Bank of America on Thursday rebuffed claims by a lawyer for several big investors, including the Federal Reserve Bank of New York, that it should buy back troubled mortgages because the loans were made improperly.

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Bank of America flag

In its first response to the investor claims, Bank of America argued that the effort would have the effect of speeding up the foreclosure process and force it to evict more homeowners. The investors’ claims have become a major worry on Wall Street as the foreclosure crisis has escalated.

A group of investors, including the Federal Reserve Bank of New York and Pimco, the money management firm, is pressing Bank of America to buy back a portion of some $47 billion worth of mortgages.

They argue that Countrywide, a unit of Bank of America, has not been servicing the mortgages correctly and that the loans did not conform to underwriting standards.

In a letter from its lawyers Thursday, Bank of America said the problems stemmed from the economic downturn rather than any underlying problem with how the mortgages were sold to investors.

It called the investor claims “utterly baseless.” Signaling a much more aggressive legal stance, the bank also criticized the lawyer behind the effort, Kathy D. Patrick.

It argued that a letter she wrote last month that was signed by clients was “written for an improper purpose, or in furtherance of an ulterior agenda.” Ms. Patrick did not immediately respond to calls seeking comment.

Since Ms. Patrick’s letter was released last month, Bank of America shares have slumped on fears that investor efforts to force it to buy back mortgages — known as put-backs — could be a drain on earnings for years.

In recent days, several reports by Wall Street research firms have estimated the put-back claims could cost the industry $43 billion to $90 billion. At the same time, Bank of America’s chief executive, Brian T. Moynihan, went on the offensive at a conference with bank analysts in Boston on Thursday.

“I don’t think we should be put in a position where we aren’t trying to help homeowners through this strife because people want us to foreclose faster,” he said.

In addition, Mr. Moynihan said, he was caught off guard by the decision of the Federal Reserve and Freddie Mac, the government-controlled giant, as well as private investors to sign the letter.

Bank of America and other large institutions like JPMorgan Chase and GMAC Mortgage themselves have faced criticism that foreclosures have been pursued without the proper paperwork or with signatures by so-called robo-signers.

But on Wall Street, the worry is that the investor effort to get the banks to buy back defaulted mortgages could actually be a longer and more expensive fight for the industry.

At the same time, Bank of America faces pressure to slow the foreclosure process, even as large investors — including the government in the case of the Federal Reserve and Freddie Mac — push for the foreclosures to proceed.

In Thursday’s letter, written by Wachtell, Lipton, Rosen & Katz, one of New York’s top law firms, Bank of America’s lawyers note that Freddie Mac has stated publicly that it is committed to help troubled mortgage holders keep their homes.

“Your demands to hasten foreclosures and to reduce loan modifications are patently inconsistent with that stated aim,” the letter said. The investors also argue that Bank of America is keeping the mortgages on its books to collect fees, rather than proceed with foreclosures.

But Barbara J. Desoer, president of Bank of America Home Loans, said that charge was false. “We have no financial incentive to keep mortgages on the books longer,” she said. “Isn’t it better to modify the loan and keep people in their homes rather than foreclosing?”

Ms. Desoer said the underlying reason for the surge in foreclosures was the broader economic downturn, taking issue with critics who claim many of these loans should never have been made in the first place.

“The economy declined, unemployment went up and house prices declined,” she said. “That’s not a reason for a loan to be put back.”