SEC Wanted Information on BofA's Reserves for Loan Repurchase

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

Bank of America was pressed by the Securities and Exchange Commission to increase their level of disclosure on repurchase reserves related to bad mortgages, according to documentation that was released yesterday.

The letter quotes the SEC as asking BofA to perform the following:

"Discuss the level and type of repurchase requests you are receiving, and any trends that have been identified, including your success rates in avoiding settling the claim"

“Tell us and disclose in future filings how you establish repurchase reserves for various representations and warranties that you have made.”

The SEC also requested that other banks, such as Citigroup and Wells Fargo , "more thoroughly discuss the risks and uncertainties associated with developing your estimated liability for representations and warranties.”

If these types of questions sound familiar—inquiring about loan loss reserve levels and the nature of repurchase warranties—it may be becausemy colleague John Carney and I first began asking precisely those questionswhen we started covering the mortgage repurchase story in late 2010.

In early November 2010, John and I wrote about our inability to quantify Citi's potential repurchase exposure—due to a lack of transparency and granularity in the data that Citi disclosed related to their mortgage lending:

"What does that translate into in terms of potential overall put-back exposure for Citigroup? To answer that question with certainty, we would need to know how much of Citi’s SBNH [Serviced But Not Held] Portfolio originated through each of the different channels. Citi has declined to provide CNBC with this information."

(Presumably, the banks were more forthcoming with their regulators.)

While John and I wrote a great deal about Citigroup, we observed back in the fall of 2010 that some analysts had pointed out that "compared to Bank of America , Citi is 'well-positioned'" to manage its repurchases, based on their loan loss reserve levels and likely exposure rates.

We even observed then that "Citi may be 'the best in class' when it comes to mortgage put-back exposure."

In a telephone interview with Bloomberg News, Bank of America spokesman Jerry Dubrowski said, "It’s not unusual for the SEC to have questions about our regulatory filings and as the letters indicate we responded to those questions and the issues appear to be resolved."


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