Without Forecasting Putback Risk, BofA Says No Big Deal on Foreclosures

During its third-quarter conference call today, Bank of America echoed sentiments conveyed by Citigroup yesterday and JPMorgan Chase last week: Nothing to see here.

There’s only one problem with this assessment; BofA declined to forecast the potential costs related to mortgage putbacks and other snafus related to the foreclosure crisis.

Management told analysts that although the issue of people losing their homes typically engenders legal troubles, “We don’t see the issues that people are worried about, quite frankly.” The company also said that the peak of costs related to recent legal troubles would probably occur within three to four quarters.

A putback occurs when an investor that bought a mortgage from a bank forces the bank to buy it back because the mortgage was not as advertised — because the underlying paperwork was shoddy, for example.

Despite Bank of America’s assurance that problems related to the foreclosure mess would not pose a big risk, the megabank also characterized its experience with one kind of putback claimant, the monoline insurers, as “episodic,” and noted that its dealings with those companies have not lent themselves to reliable statistical projections.

When pressed for a “normal number” that might quantify putback cost, management said $500 million per quarter would be a good estimate, but warned that “it’s just going to be lumpy.”

“A lot depends on where things go with the monolines and the private labels which we said is very hard to predict.”

In any case, “We think it is important for investors to know that we will vigorously contest” spurious putback claims, management said. People who bought high-risk mortgages and mortgage-backed securities shouldn’t get their money back just because those securities didn’t turn out to offer pristine performance.

“When you get people saying, ‘I bought a Chevy Vega, but I wanted to be in a Mercedes with a 12-cylinder’ … we’re not putting up with that,” said CEO Brian Moynihan.

On the other hand, BofA may very well have to put up with complaints from customers who bought a car that was illegally manufactured by a company that seems to have been willing to cut corners when it comes to legal safeguards.

mtaylor [at] observer.com | @mbrookstaylor

Without Forecasting Putback Risk, BofA Says No Big Deal on Foreclosures