BAC Going after GSE Practices

The government sponsored enterprises are feeling the heat from ""Bank of America (BAC)"":https://www.bankofamerica.com/fan. A recent filing from BAC targets ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/, stating that the ""criteria by which the GSEs are ultimately willing to resolve claims have become more rigid over time.""

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BAC claims that the GSEs ""more rigid"" practices could result in critical losses on mortgage bonds, leading to damages that ""may materially change in the future based on factors outside our control.""

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By the numbers, BAC sold an estimated $1.1 trillion in mortgage loans to Fannie and Freddie between 2004 and 2008, and during the second quarter of this year, approximately $121 billion of the GSE-owned loans were in default or more than 180 days in arrears.

The company says it is fielding and estimated $27.7 billion in claims and that, at that rate, BAC is on track for a 30 percent net loss. BAC's earning filings with the Securities and Exchange Commission in the second quarter confirm the bank's statements.

Market watchers were caught off guard by BAC's renewed dispute with the GSEs, since much recent press has been focused on the bank's issues with private buyers like PIMCO.

Analyst Chris Mutascio, who works for ""Stifel Nicolaus"":http://www.stifel.com/framesetURL.asp?URL=/homepageFrameset.asp, noted in a report released this week that an additional $48 billion in mortgage losses has been priced in within the market, representing a total above and beyond the amount BAC has reserved against.

Neither GSE has commented publicly on the issues with BAC, nor is any statement is anticipated in the near future.