Bank of America delinquent loans means RMBS losses

, Bloomberg

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Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined.

The loans are monitored as part of February's $25 billion settlement between the top five U.S. lenders and state attorneys general over allegations of abusive foreclosure practices. Bank of America's stockpile of deteriorating debt is mostly from its 2008 acquisition of Countrywide Financial Corp., once the nation's largest mortgage provider. Wells Fargo & Co., the biggest U.S. servicer, has $15.3 billion of such unpaid loans.

The data, published last month by the monitor of the settlement, highlight Bank of America's vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.

"There's just a long tail to work out all of these loans, which are severely delinquent at this point," said Marty Mosby, an analyst with Guggenheim Securities LLC in Memphis, Tennessee. "It just shows the amount of work that's still left to do."

Delays in processing the loans add to the expenses borne by investors because maintenance, property taxes and other costs add up. While rising prices may make the mortgage-backed securities more valuable, servicers can be forced to come up with cash to cover interest payments from the delinquent loans and modifications become more difficult to accomplish as the borrower's unpaid debt grows.

930,000 Loans

Bank of America's portfolio of loans that are at least six months old and not in foreclosure accounts for 3.3 percent of all of the mortgages it services. Citigroup Inc. has 1.1 percent of its loans in that category and Ally Financial Inc., Wells Fargo and JPMorgan Chase & Co. each have less than 1 percent.

Bank of America has about 930,000 loans that are at least 60 days delinquent, down from 1.5 million from the peak in January 2010, CEO Brian Moynihan, 53, said during a Dec. 14 event in Washington.

The company's large share in part reflects an agreement made in conjunction with the mortgage settlement to delay home seizures while attempting to modify loans, as well as with other temporary moratoriums the bank implemented since 2008, said Eric Telljohann, a senior vice president in the mortgage-servicing division, which employs about 50,000 people.

Bank of America postponed foreclosure sales for more than 200,000 delinquent borrowers who may be eligible for principal reductions, and a portion of those loans were not yet in foreclosure, according to Telljohann. Most of the homeowners have been contacted, and about 40,000 of them are in trial modification plans, he said.

The bank also has a large portion of delinquent Federal Housing Authority mortgages, which require servicers to follow a more time-consuming process to assess borrowers for loan workouts, Telljohann said.

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