Mortgage Issues Lead to 39% Drop in Income for Bank of America

""Bank of America"":http://www.bankofamerica.com said Friday that it turned a profit of $2.0 billion, or $0.17 per diluted share, for the first quarter of 2011.

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That's down from a $3.2 billion profit in the year-ago period but an improvement from the $1.2 billion net loss reported for the fourth quarter of 2010.

The lender's 39 percent annual drop in earnings was largely due to continuing losses and litigation expenses tied to its legacy mortgage business.

According to ""BofA’s Q1 earnings release"":http://mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1550856&highlight, noninterest expense in its consumer real estate services business increased by $1.6 billion from the year-ago quarter to $4.9 billion.

Bank of America attributed the increase to mortgage-related assessments and waivers, which includes costs associated with foreclosure delays and other out-of-pocket expenses that the company does not expect to recover, as well as higher litigation costs, and default-related and other loss mitigation expenses.

The Charlotte, North Carolina-based bank announced agreements with ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com in early January to cover repurchase claims for loans that had defaulted due to alleged faulty underwriting.

Bank of America said in its last quarterly financial report that it believed the company had addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs with the previous ""$3 billion settlement agreement"":http://dsnews.comarticles/bank-of-america-agrees-to-3b-settlement-with-fannie-and-freddie-2011-01-03. However, more buybacks from Fannie and Freddie were included in the Q1 results.

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Last quarter, BofA set aside another $1.0 billion in funds to deal with loan repurchase requests from investors. The company says “slightly more than half” of this amount is attributable to the GSEs due to higher estimated repurchase rates related to the home price deterioration.

Separately, Bank of America also announced Friday that it has reached an agreement with Assured Guaranty Ltd. to resolve both outstanding and potential repurchase claims related to breaches involving 29 first- and second-lien residential mortgage-backed securitization (RMBS) trusts where Assured provided financial guarantee insurance. The agreement also resolves historical loan servicing issues and other potential liabilities with respect to these trusts.

BofA agreed to pay Assured a total of $1.6 billion. The original collateral exposure of the RMBS trusts is $35.8 billion, of which $10.9 billion is severely delinquent or has already defaulted.

""All the businesses have moved back to profitability except our mortgage business,"" CEO Brian Moynihan told investors on a conference call.

The bank says credit quality continued to improve in the first quarter, with net charge-offs declining for the fourth consecutive period. As a result, BofA’s total provision for credit losses was $6.0 billion, or 61 percent, less than the year-ago quarter.

Additionally, the company says 30-plus day performing delinquencies, excluding Federal Housing Administration-insured loans, declined across all major portfolios.

During the first three months of 2011, Bank of America completed some 64,000 loan modifications, down 17 percent from the total completed in the first quarter of 2010.

Nonperforming loans, leases, and foreclosed properties were $31.6 billion at March 31, 2011, down from $32.7 billion at December 31, 2010, and $35.9 billion at March 31, 2010.

The bank also confirmed plans to lay off 1,500 mortgage employees, primarily loan processors and underwriters, according to a _Los Angeles Times_ report. The paper says 100 small loan fulfillment centers across the country will be closed.