Bank of America conflict with Fannie Mae intensifies

by 05 Mar 2012

( 3/5/2012 -- The rising number of flawed mortgage loans sold to Fannie Mae by Bank of America has created a rift between two financial institutions that were bailed out by the U.S. government when the American real estate bubble burst and the global economy collapsed. Government-sponsored mortgage giant Fannie Mae is pressuring lender Bank of America to cover losses incurred by insured home loans that have defaulted but do not qualify for an insurance payout.

More than 90,000 mortgages purchased by Fannie Mae from Bank of America have been rejected by their respective insurers after default due to multiple origination issues. These are loans that require Private Mortgage Insurance (PMI) as specified by the guidelines of the two government-sponsored enterprises that purchase residential mortgages, Fannie Mae and Freddie Mac. A mortgage that exceeds the 80 percent loan-to-value (LTV) ratio is required to carry PMI before it can advance to the closing table. Neither GSE will purchase a high LTV mortgage without the required PMI.

In this particular case, Fannie Mae's position is that Bank of America should pay for those mortgages that the private insurers are refusing to pay. PMI is purchased by the borrower when the home loan is originated, and the insurers trust the good faith and judgment of the lending institution when it submits a high LTV mortgage that requires insurance. A PMI policy does not cover the borrower, only the lender.

Why the PMI providers are rejecting claims

When a home mortgage covered by PMI falls into default and foreclosure, the owner of the loan is entitled to file a claim with the PMI providers. Some of the major mortgage insurance companies like MGIC, Radian and United Guaranty have rejected insurance claims on loans originated by Bank of America, and subsequently purchased by Fannie Mae, due to multiple improprieties such as hyperbolic appraisals, false documentation, non-existent assets, and exaggerated income. When a claim is successfully rejected by the mortgage insurer, the loan originator and the investor are left to deal with the aftermath.

The amount of the rejected mortgage payouts that Fannie Mae is holding Bank of America responsible was $1.2 billion at the end of last year. Fannie Mae is demanding that these home loans be repurchased, but Bank of America claims that the PMI providers have erred in their rejections. The bank thinks that many of the insurance payouts rejected by the insurers are without merit and refuses to repurchase mortgages until the matter has been settled.

Fannie Mae may require additional government assistance

The monetary amount currently in question is half of the loss posted by Fannie Mae at the end of last year. As Fannie Mae is currently under conservatorship by the government, the company may have to ask for more money from taxpayers to stay afloat if it is not able to collect from Bank of America.


  • by mary taylor | 3/5/2012 8:17:21 PM

    I have not seen anything in the media that clarifies whether or not this is a result of BAC purchasing Countrywide - does anyone know if this is the case?

  • by Dave | 3/5/2012 9:13:33 PM

    WhT percent is this to the total mortgages sold ??? 1 or 2 percent compared to other lenders? Really it sounds big but when you are the biggest you have the biggest target on your back as well BofA is doing nothing other lenders are not seems silly to me that they Only speak of BofA yet other lenders
    Oat likely have a higher buy back ratio but since BofA is so large they get the grunt Of it and I work for a competitor of BofA

  • by Adrienne | 10/20/2012 1:21:50 PM

    I had a BOA mortgage on my house in Arizona and it was originally owned by Countrywide. BOA refused to close on my house unless I signed a 7K mortgage from United Guaranty even though the mortgage was not an equity mortgage and was used for the original payment on my house. It has been a YEAR and United Guaranty says BOA has not set up this mortgage so I can not pay on it. I have called numerous times and do not know what to do??? Does anyone have any suggestions?


Should CFPB have more supervision over credit agencies?