Bank of America to Scale Back Servicing Portfolio

""Bank of America"":http://www.bankofamerica.com says it is looking to downsize its mortgage servicing portfolio.
[IMAGE] On the company's earnings conference call with investors Tuesday, CFO Bruce Thompson said, ""We're taking a very close look at the types of activities we are originating and servicing.""

On the front end, he said BofA ""will look to scale back that which we put on our books to service, and secondly, we're very focused on looking out and moving MSR [mortgage servicing right] assets through sale in those instances where it makes sense.""

The company had roughly $70 million of gains in MSR sales during the second quarter of this year, according to Thompson.

BofA currently services $2 trillion in single-family mortgages. The portfolio is about 7 percent smaller than it was a year ago.

Nearly $1 trillion of this total servicing balance resides in the company's legacy asset servicing division, which was ""formed earlier this year"":http://dsnews.comarticles/bank-of-america-establishes-new-unit-to-handle-defaulted-loans-2011-02-04 to handle problem loans.

The company divested its legacy servicing portfolio of 151,000 mortgages during the second quarter, driven by foreclosures and short sales.

Sixty-plus day delinquencies declined 5 percent to 1.2 million loans. The company says the pool of loans overdue by more than 180 days has also begun to decline as foreclosures have restarted, principally in non-judicial states.

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Bank of America said Tuesday it posted the company's largest-ever three month loss during the April-to-June period -- $8.8 billion, or 90 cents per share.

Company executives set market expectations for such a deficit when they ""announced in June"":http://dsnews.comarticles/bofa-reaches-settlement-with-investors-over-legacy-countrywide-deals-2011-06-29 that they had proposed a settlement with investors to cover loan repurchase exposure from Countrywide mortgages.

Bank of America agreed to pay investors $8.5 billion to compensate them for Countrywide’s dealings years before the subprime lender was acquired by BofA. Company officials advised investors at the time that the bank would report a loss for Q2 in the range of $8.6 billion to $9.1 billion with the settlement outlay.

The deal, however, may face some obstacles in getting approved. Eleven of the institutional investors to be compensated say they oppose the offer, and New York’s attorney general has requested documents from several participants in the settlement negotiations.

BofA’s Consumer Real Estate Services division recorded a net loss of $14.5 billion for Q2, which includes a $14 billion provision for loan buybacks, as well as other charges for the MSR write servicing costs, litigation expense, and assessments and waivers costs related to foreclosure delays.

The company says it is seeing higher operating costs within its legacy asset servicing area, in particular, given the increased expense for the ongoing servicing of delinquent loans, additional servicing requirements from regulatory consent orders, and extended default timelines in judicial states.

Thompson says higher costs were also associated with an increase in staffing for legacy servicing.

""Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues,"" said CEO Brian Moynihan.

""We intend to continue our efforts to put the mortgage uncertainty behind us,"" Moynihan continued, ""build capital through the strength of the franchise, and deliver the returns for shareholders that we owe them.""