By JAMES R. HAGERTY and DAN FITZPATRICK
As a home-mortgage lender, Bank of America Corp. avoided the excesses of many rivals during the housing boom. But an analysis of mortgage-backed securities sold to investors in 2007 by the Charlotte, N.C., bank shows its performance isn’t nearly as impressive in that area.
For example, among 17 issuers of securities backed by adjustable-rate jumbo mortgages, Bank of America’s BAFC series has performed the worst, with payments on about 16% of the underlying loans 60 days or more overdue, according to a report from Walter Schmidt and other analysts at FTN Financial Capital Markets. FTN is a unit of First Horizon National Corp., a regional bank based in Memphis, Tenn.
In comparison, about 7.6% of the underlying loans in similar securities from Wells Fargo & Co. were at least 60 days overdue, and J.P. Morgan Chase & Co.’s Chase unit posted a rate of 4.5%.
A Bank of America spokesman said that on average about one-third of the loans packaged into BAFC securities in 2007 were originated by Bank of America, with the rest purchased from other lenders.
The performance illustrates one of the main causes of the U.S. foreclosure crisis: While lenders tended to be fairly careful with loans they planned to keep on their books, they took more chances with loans sold to investors. In one category of securities sold by Bank of America in 2007, 98% of the underlying loans were made with reduced or no documentation of the borrowers’ incomes.
A Bank of America spokesman said the bank “has always maintained conservative underwriting standards” for home loans and that the mortgage securities shouldn’t be used to judge overall performance.
The report includes just a small portion of Bank of America’s mortgage business, reflecting mortgage securities that are dubbed “private label,” meaning they aren’t guaranteed by any government-related entity. Bank of America issued about $7 billion of private-label securities in 2007. That compares with $185 billion of home mortgages originated by the bank in 2007. Most of those loans were sold to government-backed investors Fannie Mae and Freddie Mac, or kept by Bank of America.
The securities are backed either by jumbo loans, which are too large to be purchased by Fannie or Freddie, or Alt-A loans, deemed below prime quality, often because borrowers weren’t required to document their income. Since 2007, few private-label securities have been issued because investors have fled in the face of soaring defaults.
Among 15 issuers of fixed-rate jumbo-mortgage securities in 2007, Bank of America’s BAFC series had the third-worst record, with a delinquency rate of about 8.6%. Bank of America’s
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