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Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.

BofA Production Tumbles, Earnings Improve

$33.8 billion in Q3 fundings

Oct. 18, 2011

By staff

While other firms have so far been reporting healthy gains in their third-quarter originations, Bank of America Corp.'s home-loan production sank as it reshapes its mortgage unit. Quarterly earnings improved by $15 billion at the parent company.

In its third-quarter earnings report, BofA outlined the transformation of its mortgage business.

The financial institution's previous mortgage strategy was to capture market share through multiple origination channels. It was also in the business of growing its third-party servicing portfolio.

But the mortgage unit has eliminated wholesale originations and is in the process of closing its correspondent operation.

That leaves it with a mortgage business that only originates on a direct-to-consumer basis. The home finance unit has been integrated into the bank's consumer franchise.

During the third quarter, 162,000 home-loan referrals came from consumer banking. In addition, 38,000 mortgage borrowers were referred to consumer banking.

Third-quarter residential originations were more than 151,000 loans funded for $33.8 billion, tumbling from $41.5 billion originated in the second quarter and likely reflecting the wind down of the correspondent business.

The decline contrasts results from firms like Citigroup Inc., which reported a 55 percent increase in originations from the second quarter; Wells Fargo & Co., where closings climbed 39 percent; and JPMorgan Chase & Co., which saw a 7 percent improvement.

BofA's latest activity was down from $74.0 billion in third-quarter 2010 production.

First mortgages accounted for $33.0 billion of the latest activity, dropping from $40.4 billion in the second quarter. Home-equity volume fell to $0.8 billion from $1.1 billion.

From Jan. 1, through Sept. 30, production totaled $133.7 billion.

BofA's new mortgage strategy also includes a reduction in its mortgage servicing rights.

After selling the servicing on 150,000 loans, the mortgage servicing portfolio ended last month at $1.9174 trillion, lower than $1.9913 trillion at the end of June. The portfolio has been reduced from last year at the same point, when the company serviced $2.0795 trillion.

The serviced-for-others portion of the portfolio finished September at $1.5 trillion, off from $1.6 trillion one quarter prior.

Residential mortgage holdings inched up to $266.5 billion from the second quarter's $266.3 billion. Home-equity loans on the balance sheet retreated to $127.7 billion from $130.7 billion. Another $11.5 billion in discontinued real estate loans were owned, down from $12.0 billion.

Excluding purchased-impaired and FHA-insured mortgages, residential delinquency of at least 30 days improved to 2.4 percent from the second quarter's 2.5 percent. At the same point last year, the rate was 2.8 percent.

But when FHA loans are added back into the mix, the third-quarter delinquency rate jumps to 10.56 percent.

On just legacy mortgage assets in the servicing portfolio, the 60-day delinquency rate was 28 percent.

HEL delinquency increased to 1.5 percent from 1.4 percent and was 1.6 percent in the third-quarter 2010.

Commercial real estate loans on the balance sheet were $40.9 billion, down from $44.0 billion three months prior.

Net income before taxes within "consumer real estate services" was a $1.9 billion loss, falling from a massive $21.5 billion second-quarter loss. The mortgage unit's loss was $0.6 billion in the same quarter last year.

Among expenses eating into earnings were mortgage litigation costs. But the company sharply curtailed this item, with mortgage litigation expense falling to $0.3 billion from $1.9 billion in the second quarter.

Also eroding income was an $0.3 billion provision for representations and warranties -- though that was hugely better than the $14.0 billion second-quarter charge for this category. Total representations and warranties liabilities closed out the quarter at $16.3 billion.

The Charlotte, N.C.-based firm swung to a $6.2 billion company-wide profit from an $8.8 billion second-quarter loss. Earnings also reversed from a $7.3 billion loss in the third-quarter 2010.

The division that handles servicing on legacy mortgage assets had a staff of 42,100 in the third quarter, growing from 40,400 the prior period.

Bank of America Corp. employed 290,509 people, growing the staff from 287,839 in the second quarter and 287,297 a year prior.

The company operated 5,715 U.S. banking centers.

Bank of America profile

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