Bank Of America Profit Margin Suffering Thanks To Mortgage Issues
April 18th, 2011
Bank of America’s profits for the first quarter of 2011 were around $2 billion, but that is down 39 percent from this time last year. The drop, says the lender, was “largely due to continuing losses and litigation expenses tied to its legacy mortgage business”[1]. The company is facing increased expenses in the form of “mortgage related assessments and waivers…costs associated with foreclosure delays and other out of pocket expenses that the company does not expect to recover…[and] higher litigation costs and default-related and other loss mitigation expenses,” it said. No small part of the expenses are related to buybacks from government-controlled Fannie Mae and Freddie Mac. BofA believed that it had covered repurchase claims in an agreement with the GSEs in January of this year, but apparently the agreements were not as encompassing as the lender had hoped, as more buybacks were included in BofA’s first-quarter results.
Brian Moynihan, BofA’s CEO, reminded investors on a conference call that “all the businesses have moved back to profitability except our mortgage business.” BofA plans to lay off 1,500 mortgage employees in the coming year, as well as close 100 small loan fulfillment centers[2]. These cuts will equal less than 1 percent of the company’s employees. Moynihan also pointed out that many customers who received loan modifications are now defaulting again and warned that everyone should expect more foreclosures as a result.
Do you think that Bank of America will ever recover fully from its purchase of Countrywide Financial Corporation, which has led most recently to a $1.1 billion securities settlement with Assured Guaranty Ltd. and clearly is still hovering like a dark cloud over the lender’s ability to move forward in today’s market?
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[1] http://www.dsnews.com/articles/mortgage-issues-lead-to-39-drop-in-income-for-bank-of-america-2011-04-15
[2] http://www.collectionscreditrisk.com/news/bank-america-eliminates-jobs-3005878-1.html
April 18th, 2011 at 11:16 AM
They will recover because the gov’t will make sure they will recover from the purchase of countrywide. The gov’t has a vested interest in B of A, so they will make sure they will recover. They are the poster boys for the bank bailouts. If B of A fails, then the whole bailout plan will be seen as a failure.
April 18th, 2011 at 4:23 PM
they should shut em down steven ruza
April 19th, 2011 at 7:19 AM
I personally believe that B of A and all the
other banking entities that are in trouble are only there due to greed. I say let them eat bread
and water. I have repeatedly tried to coerce them into lowering interest rates and offering
foreclosure clients an opportunity to keep their
homes at low low rates.
April 19th, 2011 at 9:49 AM
Simply lowering interest rates will not stop the amount of defaults currently or in the near future. B of A themselves said in the article many-which I’ll tell you is well over 50%- of loan mods given are back in default, and had interest rate reductions possibly coupled with term extensions and the people still cannot keep up.
The only way this will ever work is add in principle reductions-I say all way down to 110% of current market value. I’ve played with the numbers and the banks will come out on top if they did so.
Many of those re defaults are are strategic as people realize they will not have any equity for many years to come so why not dump an over leveraged property and rebuild into something affordable with an equity future.
Add in the fact that most loan mods given were “temporary” solutions with interest rates scheduled to increase as time passes and many who got them once again cannot afford them.
The whole loan mod program just like the original debacle of the mortgage industry has been manipulated by the banks to the point of failure-just so they could prove themselves right.
I agree with both Brian and Steven The gov will not let them fail although they should. Their failure would give rebirth to the American entrepreneurial spirit and MAYBE those who would replace them might do so with a concience and have the public’s best interest opposed to the lining of their own pockets at heart.
Wake up Obama, principle reductions are the answer.
April 19th, 2011 at 1:11 PM
B of A was first bailed out when Reagan closed the S & L’s, gave B of A two Portland S & L’s instead of letting B of A fall into receivership or the grips of Wells Fargo,which was waiting to buy them 25 years ago! B of A should be broken into the local parts that were onoce profitable, now suffer from the loss of local capital to fuel the economy instead of the remaining large Banks!