Bad Mortgages Could Cost Bank Of America $10 Billion

Bank of America, which earlier this month agreed to pay over $2.8 billion to Fannie Mae and Freddie Mac to settle claims about faulty mortgages, says it could spend another $10 billion to address outstanding claims. The company says the number is the “upper range” of its estimated housing bubble liabilities.

Bloomberg reports that BofA chief financial officer Charles Noski warned analysts about the possible $10 billion hit in a conference call:

Bank of America, the biggest U.S. bank by assets, has been battling accusations that mortgage investors were duped into buying loans issued with overstated property values and inflated borrowers’ incomes. Noski said the size of the provision was appropriate after Betsy Graseck, an analyst at Morgan Stanley, asked why the company didn’t set aside more for reserves, given the forecast range.

“This is a possible range, not a probable range,” Noski said. The future loss “could be as low as zero, theoretically, up to a high end of the range that we think could be $7 billion to $10 billion, based upon an array of different assumptions.”

Bank of America’s mortgage woes pushed the company into a loss for the fourth quarter of 2010, and addressing all claims will be “a protracted process which could take years to conclude,” according to Noski.

BofA Says $10 Billion Is Top of Forecast for More Buyback Costs [Bloomberg]

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  1. incident man stole my avatar says:

    Great that means a higher interest rate on my credit card…. oh wait a minute I pay it off every month.. nevermind

  2. deejmer says:

    Hey there government and banks. How are ya. Good. Hey, remember that time you were supposed to get rid of those “toxic assets” and what-not? What ever happened with that? OH!!! That’s right, you just did that whole Dog & Pony show deal instead……

    • ARP says:

      Yep, they took all that “free” money, invested it in T-bills (which have a higher rate of return, since we’re borrowing so much), and held on to those assets in hopes of selling them, forclosing, recovering, etc. The government even offered to overpay banks for those assets.

      I agree that some sort of bail-out had to happen, but the way they went about it and the conditions they put on the money, sucked.

  3. Loias supports harsher punishments against corporations says:

    Hoping BoA dies. I’m willing to take the frustrations in trying to pay my mortgage if it means they no longer exist in the end. (Note: my mortgage was sold to BoA; not by choice).

  4. Blueskylaw says:

    Remember when the Big Dig in Boston was supposed to cost “only” $2.6 billion dollars? It ended up costing about $22 billion. They will always lowball estimates so that their stock, and therefore their bonuses won’t take a hit.

    Enhanced fees: Ready, set, GO!!!!

  5. Costner says:

    They won’t ever take the full hit of $10B, but they may be forced to take $3B or so after negotiations. They already know this and have built up their fund for absorbing such losses, so at the end of the day this probably won’t be a significant hit to them.

    Although the last couple of years have not been kind to BOA, when the economy turns around and they get over this glut… a few billion won’t even register on the radar.

  6. Tiercelet says:

    They’re lying.

    Absent an ENORMOUS gift from Congress in the form of giving BoA & others a pass on their fraudulent mortgage documents, they’ve got potentially hundreds of billions in exposure to forced buybacks of the bad loans they sold off.

    Of course, that’s the next step in the total handout — eliminating even the semblance of legal standards so that the bankbugs don’t have to cough up a drop of blood. Look for it to be a top Congressional priority by the summer.

  7. keepher says:

    How is gobbling up Countrywide Financial working out for you BoA? Not such a great deal any more? Well, relax. The Feds will step in and fix it for you.

  8. Red Cat Linux says:

    Waitaminnit. I think I may be shedding a tear.

    Wait….

    Nope. The moment’s passed.

  9. Jerkamie says:

    Maybe the US should start insuring the mortgages like they do in Canada then they wouldn’t have this problem.

    • Red Cat Linux says:

      The US does have mortgage insurance (PMI). It isn’t always required, but the lender will insist on it if certain risk factors are present. They do of course pass on the cost of the insurance to the borrower.

  10. u1itn0w2day says:

    Just another corporation and bank in particular that rushed to “clean” up their books to make “seem” like they had everything under control. One of many companies that probably fried the books from 08 on to make it seeeem like they survived the crash.

  11. CBenji says:

    My bank is now BOA too since it was bought out. It is very annoying. The whole banking mess is annoying actually. Every time I turn around somebody on my street is moving out and just leaving their house, while I was shoveling my sidewalk I noticed there were more streets with snow that wouldn’t be shoveled than would. How is that for snow that my dog can’t walk through? And no I am not going to shovel all of them. I started doing it after the first snow this year for the next door neighbor this year, but said screw it after a while. This winter has just been too much and now I have lost interest. The poor dog hasn’t been for many walks as she is a half Maltese/Shitzu who can’t make it over large piles and I don’t want her paws to get too much salt on them. I am not going to shovel the backyard for her either, but thankfully she does do a dance on my back sidewalk.

    Anyone that thinks deregulation was a good thing was very wrong.

  12. ZIMMER! says:

    Hoping BoA dies, not holding my breath though. The government will bail them out, again.

  13. maynurd says:

    If they did the mortgages right, AND only gave mortgages to people who could actually afford them, they wouldn’t have this problem now. It’s their mess, let them clean it up and eat whatever loss they incur as a result.

  14. sk1d says:

    So that means another $100Billion bailout?

  15. tjustman says:

    Bank of America shouldn’t have bought Countrywide. Countrywide would have gone bankrupt and they wouldn’t eat the losses they didn’t cause. Remember Bank of America exited subprime loans long before this all blew up.

    In a way people should be grateful for Bank of America to make good on the misdeeds on Angelo Mozilo and the Calabasas crew.