Is Bank of America finally going to drain its mortgage swamp?
Perhaps. BofA (BAC), which has frequently outdone the other big banks when it comes to stupid foreclosure tricks, set a plan Friday to belatedly work some private equity magic on its bloated bad loan book.
The Charlotte, N.C., bank named Terry Laughlin, a veteran of OneWest Bank, to run a newly created Legacy Asset Servicing unit. Laughlin will “oversee the bank’s mortgage modification and foreclosure programs, and continue to be responsible for resolving residential mortgage representation and warranties repurchase claims,” BofA said.
It is about time, you might say. Bank of America has spent billions of dollars to pay off claims on souring mortgages written by Angelo Mozilo’s Countrywide, acquired in 2008. But the bank has continued to stumble, and investors remain fearful that the cost of righting Mozilo-era subprime wrongs will run into the tens of billions of dollars.
BofA has spent $50 million in recent months paying Mozilo’s personal legal tab, and billions more settling Countrywide cases. But more such bills stand to come due in coming months as cases work their way through the courts.
Meanwhile, BofA continues to sag under the weight of bad mortgages written by Countrywide before it collapsed in a late 2007 funding crisis. More than 14% of BofA’s mortgages were late or in foreclosure as of September, according to data published by rival Wells Fargo (WFC) – compared with 11.5% at JPMorgan Chase (JPM), 9.5% at Citi (C) and 8.1% at Wells.
That’s not all. BofA’s rate of converting loan modifications offered under the government’s Making Home Affordable program has lagged behind competitors. Data published this week by Ally Financial show BofA converting 31% of HAMP trials — which is less than half of Ally’s rate and compares with 42% at CitiMortgage and 38% each at Wells and JPMorgan.
Barbara Desoer, who has been seen as a possible successor down the road to CEO Brian Moynihan, will remain as head of the Bank of America Home Loans unit that now houses the former Countrywide.
Damning her tenure with faint praise, BofA said the unit “will continue the company’s strong momentum in extending home mortgage credit while improving its leading mortgage modification programs for distressed homeowners and resolving legacy mortgage issues.” That is to say, it will try to continue building off an unbelievably low base in all areas.
One of Desoer’s focuses in coming months, it seems, will be lobbying — which only makes sense, given the losses Bank of America has already recognized on the ill-advised Countrywide acquisition. Just running the business as is, it seems, won’t be enough to turn this turkey around.
To capture the value of the industry-leading mortgage platform, Desoer will focus on the future of the Home Loans business, as well as the housing industry as a whole, leading Bank of America’s efforts on critical issues such as housing finance reform and the future of the GSEs.
For his part, Laughlin joined Bank of America in July from OneWest, the private equity-run bank that in short order turned the remains of the failed thrift IndyMac into a billion-dollar money machine.
He “will lead an aggressive borrower outreach program to include more than 400 housing rescue fairs in 2011 alone, build additional customer assistance centers in hard-hit communities and expand partnerships with nonprofits,” BofA said.
Fixing the broken BofA foreclosure mill surely will prove a stern test for Laughlin. But hey, at least maybe someone’s going to try for once. If so, better late than never.