BOA DEATHWATCH: CLASH WITH FANNIE MAE INCREASES BUYBACKS OF LOANS

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“Mortgage guarantors such as MGIC Investment Corp., Radian Group Inc., and American International Group Inc.’s United Guaranty have been voiding policies for errors including inflated appraisals or borrower incomes.”

EDITOR’S NOTE: DOUBLE STANDARD: The insurers are dropping coverage because the mortgage was a sham. The appraisal was faked and the borrower’s income was faked as well — by the lenders. So BOA is not contesting the insurer’s right to drop coverage which is an admission that indeed the appraisals were faked along with the borrower’s income, which makes the entire mortgage a sham. But when the borrower comes into court pleading sham transaction, the borrower is given short shrift — “you borrowed the money and you didn’t pay it back. End of story.”

INSURERS DROPPING COVERAGE, FANNIE DEMANDING BUYBACK

BLOOMBERG, HUGH SON

Bank of America Corp. (BAC) told Fannie Mae it refuses to cooperate with the U.S. mortgage firm’s new stance on loan buybacks, setting the lender up for a potential surge in claims and penalties.

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. The lender, ranked second by assets among U.S. banks, 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.

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. The company set aside $278 million for loan buybacks in the third quarter, the least since Chief Executive Officer Brian T. Moynihan took over almost two years ago. Those expenses may rebound if Fannie Mae’s rules stand, the bank said.

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 Federal Housing Finance Agency, the regulator for Fannie Mae. 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.”

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According to Fannie Mae, lenders were always contractually required to ensure that mortgage insurance was maintained. A guide dated June 30 requires lenders to alert the Washington- based mortgage financing firm of coverage withdrawals within a month of the event and gives them 90 days to appeal a repurchase demand. After June 2012, banks have just one month for appeals.

“Our contracts are clear that when a mortgage insurance company rescinds the required mortgage insurance, the loan is subject to repurchase by the lender,” said Amy Bonitatibus, a spokeswoman for Fannie Mae.

 

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