The Bank of America said yesterday it would create a unit to handle 1.3 million soured mortgages as Brian T. Moynihan, the bank's chief executive, tried to distance the company from the fallout of the mortgage crisis, according to an article by Nelson D. Schwartz in today's edition of The New York Times.
The entity, known as Legacy Asset Servicing, will become the repository for tens of billions of dollars in troubled assets, including many subprime products that are no longer offered by Bank of America but continue to hang over the company, the article said, adding that "most of the loans were picked up when Bank of America bought Countrywide Financial in 2008.
Legacy Asset Servicing will also lead the handling of home loans in default, including initiating foreclosure proceedings, and deal with billions of dollars in claims by investors seeking to force Bank of America to buy back bad mortgages, the article said, adding that "about 12 million healthy mortgages will remain with Bank of America's home loan division, while the troubled loans in the Legacy Asset Servicing unit are gradually wound down."
"Countrywide became synonymous with the riskiest practices of the subprime lending industry before its acquisition by Mr. Moynihan's predecessor, Kenneth D. Lewis, in 2008. Since then, Bank of America has written off billions of dollars because of Countrywide even as the foreclosure policies of Bank of America and other giants created a furor among both customers and political leaders. While this step may reassure analysts and investors, Bank of America and other mortgage servicing giants remain at the center of an investigation into foreclosure practices by all 50 state attorneys general," the article said.
"One particular focus," the article continued, "is the role of what became known as robo-signers, bank officials who signed thousands of documents a month with barely a review, as well as whether foreclosures and evictions were pursued despite the absence of crucial documents. The new unit will be led by Terry Laughlin, a longtime financial industry executive who led One West, formerly known as IndyMac, before joining Bank of America last year. Mr. Laughlin has worked with Mr. Moynihan before, most notably at Fleet, the New England banking giant acquired by Bank of America in 2004. Legacy Asset Servicing will not be a separate legal entity, but it could make it easier for the bank to put mortgage-related losses into one basket, shifting the focus of analysts and investors to the bank's healthier businesses."
This is the latest in a series of actions that follow Bank of America's moratorium on foreclosures last year. The bank says it has altered its foreclosure practices, while sharply increasing the number of modifications to distressed homeowners, reaching 80,000 in the fourth quarter.
The bank set aside $4.1 billion in the last quarter to settle claims by investors who hold soured mortgage securities, citing evidence that the underlying loans did not conform to underwriting standards or that they lacked the proper paperwork. Of that $4.1 billion charge, $3 billion was earmarked to satisfy claims by Fannie Mae and Freddie Mac, the government-controlled companies that dominate the mortgage market.
"For the first time last month," the article said, "the bank gave estimates about the extent of this potential liability stemming from these so-called put-back claims in the future, estimating the high end to be $7 billion to $10 billion. That is well below the tens of billions of dollars in put-back risk that some analysts have warned that Bank of America faces, a fear that weighed on its stock in October and November."
The entity, known as Legacy Asset Servicing, will become the repository for tens of billions of dollars in troubled assets, including many subprime products that are no longer offered by Bank of America but continue to hang over the company, the article said, adding that "most of the loans were picked up when Bank of America bought Countrywide Financial in 2008.
Legacy Asset Servicing will also lead the handling of home loans in default, including initiating foreclosure proceedings, and deal with billions of dollars in claims by investors seeking to force Bank of America to buy back bad mortgages, the article said, adding that "about 12 million healthy mortgages will remain with Bank of America's home loan division, while the troubled loans in the Legacy Asset Servicing unit are gradually wound down."
"Countrywide became synonymous with the riskiest practices of the subprime lending industry before its acquisition by Mr. Moynihan's predecessor, Kenneth D. Lewis, in 2008. Since then, Bank of America has written off billions of dollars because of Countrywide even as the foreclosure policies of Bank of America and other giants created a furor among both customers and political leaders. While this step may reassure analysts and investors, Bank of America and other mortgage servicing giants remain at the center of an investigation into foreclosure practices by all 50 state attorneys general," the article said.
"One particular focus," the article continued, "is the role of what became known as robo-signers, bank officials who signed thousands of documents a month with barely a review, as well as whether foreclosures and evictions were pursued despite the absence of crucial documents. The new unit will be led by Terry Laughlin, a longtime financial industry executive who led One West, formerly known as IndyMac, before joining Bank of America last year. Mr. Laughlin has worked with Mr. Moynihan before, most notably at Fleet, the New England banking giant acquired by Bank of America in 2004. Legacy Asset Servicing will not be a separate legal entity, but it could make it easier for the bank to put mortgage-related losses into one basket, shifting the focus of analysts and investors to the bank's healthier businesses."
This is the latest in a series of actions that follow Bank of America's moratorium on foreclosures last year. The bank says it has altered its foreclosure practices, while sharply increasing the number of modifications to distressed homeowners, reaching 80,000 in the fourth quarter.
The bank set aside $4.1 billion in the last quarter to settle claims by investors who hold soured mortgage securities, citing evidence that the underlying loans did not conform to underwriting standards or that they lacked the proper paperwork. Of that $4.1 billion charge, $3 billion was earmarked to satisfy claims by Fannie Mae and Freddie Mac, the government-controlled companies that dominate the mortgage market.
"For the first time last month," the article said, "the bank gave estimates about the extent of this potential liability stemming from these so-called put-back claims in the future, estimating the high end to be $7 billion to $10 billion. That is well below the tens of billions of dollars in put-back risk that some analysts have warned that Bank of America faces, a fear that weighed on its stock in October and November."
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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