From the FT.com:
Bank of America plans to shrink its $850bn portfolio of troubled home loans by about half over the next three years as it seeks to quicken the pace with which it resolves problems related to the housing crisis and its disastrous purchase of Countrywide Financial.
Terry Laughlin, who is spearheading BofA’s mortgage modification and foreclosure programs, told the Financial Times he had been given leeway to act quickly to tackle the growing number of bad loans that threaten to overwhelm the bank’s overall performance and tarnish the reputation of Brian Moynihan, its chief executive.
This year BofA hived off its problem loans into a “legacy” unit that Mr Laughlin runs, leaving the “good” mortgages in a separate division headed by Barbara Desoer.
A key part of Mr Laughlin’s strategy will be to shrink the portfolio of “bad” loans to about $450bn-$500bn during the next few years, as mortgages that originated with Countrywide and are no longer offered by BofA – including some with adjustable interest rates – are run off, modified or sold at discount prices.
BofA owns about $118bn of the problem loans outright. It services the rest, which means it collects payments from borrowers and initiates foreclosure proceedings.
About 60 per cent of the 4.2m borrowers were up to date with their payments. The rest were at least three months past due, Mr Laughlin said.
To better handle the high number of delinquencies, Mr Laughlin wants to streamline the modification process, under which borrowers are typically offered lower monthly payments for a period.
Mortgage holders will deal with a single bank employee and should receive a decision within 30 days, about one-third of the time it now takes to determine eligibility.
It’s not clear, but if they are talking about 40% of their $850 Billion troubled-loan portfolio, that’s $340 billion of mortgages that are 90-days past due.
It’ll take a few years to work that out.
But if 60% of your troubled-loan portfolio is current, why are they troubled?
What about foreclosure within 30 days? And how can they be talking about it taking 3 years when it has already been going on for the past 3 years?
WTF?!!!!
The house two doors down from us has been vacant for over a year. I’m perplexed that they didn’t rent it out to help pay for the mortgage or even skim like so many others have. In any case, I seriously doubt the owner made any payments. They finally got a NOD in March. So figure it takes a year for a NOD to be filed on a non-owner occupied. A friend of the owner just moved in. Probably no to low rent. Wonder how long before BofA actually forecloses on this one.
Huge huge losses coming. A $3 billion profit gets eaten up really quickly if any real percentage of those loans results in hard losses. Even if they ONLY lose money on the loans they own (over 100B). Does anyone have info on how BfoA has these loans currently valued on their books?
Here was the original separation article.
http://www.bloomberg.com/news/2011-03-08/bofa-segregates-almost-half-its-mortgages-into-bad-bank-under-laughlin.html
“The legacy portfolio will hold 6.7 million loans with outstanding principal balance of about $1 trillion, according to a presentation to investors today. The split leaves home loan President Barbara Desoer with about half her previous portfolio, as well as new lending going forward.
Laughlin’s portfolio will include loans that are currently 60 or more days delinquent as well as riskier types of loans the bank no longer originates, such as subprime, Alt-A, interest- only and option adjustable-rate mortgages, he said. He said the portfolios will be completely split by March 31 and that his will be liquidated over time. Of the 13.9 million loans Bank of America services, about 3.5 million are held by the company on its balance sheet. The rest are owned by other investors. ”
My understanding is 60% of the bad bank loans are current, but they are classified as high risk.
Seems to me that this article misses the tail wagging the dog aspect.
Its fine to say that you are going to shrink your portfolio over a three year period, but the reality is that the losses will be taken against profits, not against Tier 1 capital. That has been the game so far, and I don’t see why there would be a change.
So if B of A has enough profits, the losses will be written down over three years. If they don’t have enough profits it will take longer. They will do what they have to do to get through the stress tests and preserve capital ratios. Not taking a hit to tier one capital will drive the timing, not a perceived tarnishing of the reputation of Brian Moynihan.
On an anecdotal note, I know an investor who has not paid countrywide on two adjacent 4 unit investment loans for about 8 months now, and it has continued to bounce around the various B of A departments. No NOD filed.
He was just sent a package to apply for a HAMP mod. Go figure. They can’t figure out that he is an investor who won’t qualify after 8 months of bouncing through their system?