A memo written by BofA home loans sales executive Matt Vernon notes that:

While we regret the inconvenience this will cause to some of our customers in the short term, we are making the responsible choice that is in the best interest of our long-term capabilities to provide a predictable customer experience.

The memo was provided to National Mortgage News by a confidential source.

In spite of arguments that this is some of the cleanest product ever to be originated, and profit margins being solid for many in the business, BofA seems to be backing off a bit. They produced just over $22 billion in mortgages during 4Q2011, a 75% decline from 4Q2010.
___
Source:
Another Mortgage Shoe Drops At BofA – National Mortgage News
___
Related:
Mortgage Banker View: BofA Cuts Off Mortgage Bankers

“Ongoing distress in real estate markets and slow growth in jobs and incomes continue to pose risks to credit quality,” Acting Chairman Gruenberg said. “The U.S. economic outlook is also clouded by uncertainties in the global economy and by volatility in financial markets. So even as the banking industry recovers, the FDIC remains vigilant for new economic challenges that could lie ahead.” As was the case in each of the last eight quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings.

For the geographically challenged, Basel, Switzerland is in Europe. The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of several large countries in 1975. It provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The Committee also frames guidelines and standards in different areas. As the FT says:

Under the global Basel III rules, which will be phased in between now and 2019, banks have to hold top quality capital equal to 7% of their assets, adjusted for risk. The biggest banks will also be hit with an additional surcharge of up to 2.5%. Banks in the European Union will also have to hit a temporary 9% ratio next year after discounting their risky sovereign debt holdings.

But US banks are asking for weakened Basel III rules (FT excerpts and link below).

Basel III’s capital requirements, of course, is one of the reasons servicers (like GMAC) are either shifting servicing values, selling servicing, or deciding they don’t want it anymore period.

US lenders are urging financial regulators to ease new international bank liquidity rules as the industry faces a collective shortfall of $1.4 trillion for complying with the new regulations.

…American banks are at a disadvantage to their foreign peers because the regulatory response to the financial crisis limits the kind of assets US companies can use to show they could withstand a 30-day bank run … The package of reforms, known as Basel III, includes a provision that requires banks to hold enough cash-like assets to survive a month-long crisis. Lenders in the US and in Europe have argued that the “liquidity coverage ratio” is too stringent and would limit lending.

…The Clearing House urged US regulators to relax implementation of the Basel standards because they unfavorably treat debt and mortgage securities issued by Fannie & Freddie.

…While cash and sovereign debt can be used to meet the entire liquidity requirement, Fannie and Freddie securities, covered bonds and high-quality non-financial corporate bonds can only count towards 40 per cent of it.

…Fannie and Freddie securities are generally regarded as more liquid instruments than covered bonds. We have a little time: the liquidity rule will not go into effect until 2015. In response to complaints from lenders, financial regulators agreed to fine-tune the liquidity standards, where needed, by 2013.

Bill R. wrote to me, “When Basel III took over it rigged/leaned the banking systems rules and regulations toward the larger banks awash in global CDS and CDO’s. Left swinging in the wind were smaller banks forced to stand on their own feet, their own balance/income statements without the support of Government bailouts. This is what the unknowing useful idiots on WS are jumping up and down about.”

Across the Pacific, Australia’s major banks are preparing to issue covered bonds to enhance liquidity-risk positions as Basel III rules loom. “The two major benefits for Australian banks issuing covered bonds are access to lower costs of funding and a move to a more stable longer-term source of funding,” said William Mak, credit-desk analyst at Nomura. “Covered bonds will also have implications for the net stable funding ratio as banks shift to longer-term stable funding required under Basel III liquidity reforms.”
___
Reference:
-FT: Fed Sets US Banks Toughest Stress Tests
-FT: US Banks Ask For Weakened Basel III Rules
-TheBasisPoint: Time To Dump Basel Bank Capital Rules?

The bank is disputing Fannie Mae’s demand that lenders repurchase mortgages or cover any losses themselves if an insurer drops coverage, Bank of America said this month in a regulatory filing. BofA said it ‘does not intend to repurchase loans’ under what it deems to be new rules, and the refusal may trigger penalties or other sanctions, according to Fannie Mae. At stake is Bank of America’s ability to contain costs from faulty mortgages, which have reached about $40 billion for refunds, lawsuits and foreclosures…Fannie Mae didn’t enforce this policy before because “it was a different economic time,” said David Felt, a former deputy general counsel at the FHFA. Defaults were fewer and the firm didn’t want to harm relations with lenders by being too picky, he said. “They’d overlook the small things. Well, they’re no longer small things, and they’re no longer the old Fannie Mae.”

And in other Bank of America news, The Financial Times reports that the states of New York and Delaware…

…won the right to intervene in a proposed $8.5bn settlement agreement over soured mortgage bonds between Bank of America and a group of aggrieved investors. New York attorney-general Eric Schneiderman and Delaware’s Beau Biden say the deal is inadequate to investors and that the trustee for the investors, Bank of New York Mellon, broke state laws. Mr. Schneiderman asked the judge overseeing the agreement to reject it. Bank of America struck the June accord with 22 institutional investors, including the Federal Reserve Bank of New York and bond group Pimco, to settle claims that the bank repurchase home loans bundled into 530 securities with an original loan balance of $424bn. BNY Mellon agreed to the deal on behalf of all investors in the securities.” “This could complicate efforts by BofA to limit its exposure to allegedly faulty mortgage practices. The company’s shares have plunged 59 per cent this year in part on concern the bank faces unresolved and unknown mortgage liabilities. Its shares closed at $5.49 on Monday, the lowest since March 2009.

___
Sources:
-BusinewwWeek: BofA Won’t Cooperate Fannie’s Loan Buyback Policy
-FT: States Win Right To Block $8.5b BofA Settlement

Harrison included an interview with Reggie Middleton of BoomBustBlog where he lays out the CDS issue clearly. At the end of the video, they also discuss BofA’s problems. Below is a slide of BofA’s derivatives vs. GDPs of various nations and world GDP. Staggering. If you want insight into what’s going in on Europe, this is a must-read/watch post.

___
Further Reference:
-Mortgage Rate Outlook Post-EU Announcement

Wells Fargo originated $89 billion in new mortgages, down 12% from the $101 billion last year.

JPMorgan Chase originated $36.8 billion in new residential loans, down 10% from the $40.9 billion in the third quarter of last year.

BofA came in #3, originating $33 billion mortgages in the third quarter, a 54% decline from $71.9 billion a year earlier.

And Citigroup wrote $17 billion in mortgages during the quarter, down 8.5% from the $18.6 billion.

Experts say a backlog of distressed properties built up because of the numerous investigations into foreclosure and mortgage-servicing practices. And all of this in the middle of the negotiations between the state attorneys general and the large servicers.

Besides California, New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota have signaled that they were unhappy with the direction of negotiations because, they say, the legal release from liability being offered to banks is too broad. New York and Delaware have been cooperating in their own probes separate from the coalition.

Federal officials have been trying to broker a settlement with the five largest mortgage servicers: Ally, BofA, Citi, Chase, and Wells. There was a flurry of GOV.REFI news yesterday in the press, mostly centered on a plan to help some “underwater” borrowers get refinancing assistance. Apparently it sprang forth from the loins of a meeting last week between government negotiators and lenders as part of an effort to settle allegations of questionable foreclosure practices. Reports noted that:

“The plan under consideration would make refinancing available to some borrowers whose houses are worth less than their loans, so long as they are current on mortgage payments. The plan would apply only to mortgages owned by the banks. It isn’t clear how many of those borrowers would qualify for help. Around 20% of all U.S. mortgages are owned by U.S.-chartered commercial banks; the majority is held by investors in mortgage-backed securities.”

So now borrowers will become directly involved in knowing if their loan was placed into a security or not?

I can just hear someone in the servicing department explaining that to an underwater borrower! One report noted that there seemed to be nothing “progressive” out of the administration yet, just more “can kicking” strategies. And another noted that the FHFA wants nothing to do with additional credit risk or a larger portfolio. That won’t change until after the 2012 elections. That puts the onus on banks and investors to take a hair-cut.

The WSJ has the latest mortgage-settlement trial balloon: if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates.

But of course any refinance program would be particularly costly for banks because they would be forced to give up expected interest income on loans for which borrowers are current on their loan payments and, given their payment histories, unlikely to default. Banks can’t reduce rates on loans they don’t own because the result would be a net loss to the investor. Under the new proposal, banks would refinance certain borrowers who are current on their loan payments, but can’t qualify for a traditional refinance because they owe more than their homes are worth. And of course there are all the issues with existing reps & warrants, along with MI questions.

There is a big difference between hallway chatter and Bloomberg headlines like “MetLife May Sell Mortgage Business.” Here’s the gist:

Chief Executive Officer Steven Kandarian, who took the job in May, is planning to exit a business that expanded in June when it replaced Bank of America Corp. as the preferred lender of builder KB Home…Keeping the mortgage unit could divert “resources away from MetLife’s primary focus on its global insurance and employee benefits businesses,” the New York-based company said in a statement. The company, the largest U.S. life insurer, plans to keep a so-called reverse-mortgage business that issues home equity-backed loans to people age 62 or older and jumped to No. 2 in the U.S. this year…MetLife will continue to originate mortgages as it seeks a buyer for the business, it said. MetLife Bank made about $4.4 billion of residential home loans in the first quarter of 2011, accounting for 1.5 percent of total mortgage originations…Today’s uncertain marketplace and regulatory environment require a tremendous amount of resources.

Given the investor scuttlebutt from the conference and general rumors, possible half-truths, and outright misstatements, here are some key points:

-MetLife is/was a solid competitor for wholesale broker business in many parts of the nation – maybe someone like Fortress will buy the mortgage group.

-Bank of America will soon be strictly retail, and only in some states.

-Chase does not buy third-party originated production, i.e., broker business, from clients.

-GMAC, PHH, and SunTrust have varying degrees of operational hurdles, and only buy loans on a mandatory basis one at a time or not at all, and have varying degrees of tolerance for buying loans from smaller companies offering correspondent relationships. Are they ready for all this volume?

Looking at the top correspondents, volume-wise, so we have Wells Fargo, which is grappling with purchase turn time days into the teens, CitiMortgage, U.S. Bank, Flagstar, Franklin American, and BB&T. Rumors of higher capital requirements for correspondent sellers are rampant. Too much competition is one thing, but does the industry really need fewer players? Besides making things easier for pricing engines, will the borrower be better off?

Let’s ask the protesters about unintended consequences.

Any here’s a conference recap from one top industry executive:

“Recap of 4 days in Chicago: ‘All investors suck because of repurchases and all AMCs suck because they overpromise and under deliver. But isn’t Chicago a great place to have this conference?’” So wrote an attendee to me yesterday. But a fair amount of news came out of it, one piece being that, “Fannie Mae and Freddie Mac are increasingly demanding sellers repurchase mortgages that default years after they were made and buy back recent loans that aren’t even delinquent, according to PHH.” “They’re casting the net wider,” Luke Hayden, head of PHH’s mortgage unit.

As previously announced, Bank of America Home Loans plans to exit the correspondent mortgage lending channel and focus entirely on retail distribution for its mortgage products and services. After a comprehensive review of market opportunities, Bank of America will close its Correspondent Lending channel by the end of 2011, following an orderly transition with Clients.

Effective immediately, no new Negotiated Trade pool or flow trades will be offered. Best Efforts and Mandatory locks will be accepted through close of business Monday, October 31. (All locks during this time frame must be 45 days or less in duration. Existing extension, relock, renegotiation, and trade extension/rolls policies will apply, but commitments will not be allowed to extend beyond December 15.)

AOT’s and Direct trades will be offered through close of business Monday, October 31. Impacted Clients will receive a separate communication shortly with key dates. Loans must be purchased by Correspondent Lending on or before December 15.

Existing locks extending beyond December 15 as of October 3 will be honored.

Bank of America will work closely with Correspondent Lending Clients to ensure an orderly transition for customers with mortgage loans in the pipeline.

All loans currently in the pipeline will receive full support and continue through the process.

Bank of America Warehouse Lending is operating business as usual while Bank of America evaluates opportunities for that line of business.

Here’s what consumers must know about BofA’s move & the mortgage industry:
Mortgage Banker View: BofA Cuts Off Mortgage Bankers

The transaction was completed July 1, 2008 with Countrywide Financial Corporation merging into Red Oak Merger Corporation, a wholly owned merger subsidiary of Bank of America Corporation.

The merged company retained the “Countrywide Financial Corporation” name and became a direct subsidiary of BAC.

Countrywide’s primary operating subsidiaries travelled with the CFC holding company during the merger, namely: Countrywide Home Loans, Inc. (CHL), Countrywide Securities Corporation (CSC), Countrywide Home Loans Servicing, LP, and Countrywide Bank, FSB.

Bank of America generally opted to have its subsidiaries purchase assets from the legacy CFC units and only selectively merge with non-securitization related Countrywide entities, although CHL was the primary mortgage originator in the Countrywide group of companies.

It’s important to understand this tangled web, since the structure of the relationship with Countrywide should ultimately limit the risk to Bank of America from continuing legacy mortgage legal claims.

Analysts believe that the small size of Countrywide’s balance sheet, its limited continuing value, and its ongoing legal separateness suggest that Bank of America’s risk related to Countrywide is contained.

CHL constitutes 74% of Bank of America’s non-agency origination from 2004-2008, 77% of defaulted and delinquent balances, and 78% of defaults and delinquencies that occurred within two years of origination.

Analysts expect most of the liability to reside in the still-separate Countrywide entities, including CFC, CHL, and CSC.