Credit Charges at Heart of BoA's Mortgage Losses

Bank of America's residential mortgage operation appears be earning money hand-over-fist on an operating basis — until credit charges are factored into the equation. BoA, the nation's largest lender and servicer, reported a $3.8 billion loss in its mortgage and insurance division for all of 2009 compared to a $2.4 billion loss the year before. New figures show that $11.2 billion worth of credit charges (on delinquent loans) have more than wiped out its net profit in mortgage banking. The bank noted that at year-end it had $35.7 billion in nonperforming assets (company wide) and a provision for credit losses totaling $48.6 billion — most of it tied to residential "legacy" mortgages brought in-house when it bought Countrywide Financial Corp. and Merrill Lynch as well as their residential divisions. But according to supplemental materials released along with its fourth quarter earnings, BoA's mortgage banking division had an operating profit (before charges) of $1.8 billion in the fourth quarter, a 13% improvement over the fourth quarter of 2008. In the third quarter, its residential mortgage unit earned $1.4 billion before charges. To date, BoA has said little publicly about selling the problem mortgage loans and securities it acquired from Countrywide and Merrill. In the fourth quarter it funded $83.9 billion in residential loans, double its volume a year ago but a 7% drop from the third quarter.