Bank of America is set to sell an additional collection of rights on some of their residential mortgages. Sources say that they have already let go around $300 billion worth of their mortgages and they are planning on relieving themselves of another $100 billion worth soon. As well as letting go all of these collection rights, a few unnamed sources expect Bank of America to be selling off mortgage servicing rights in the future as well.
Two Stunning Deals
The two deals that Bank of America made show just how rough the mortgage market is becoming for banks and how much of a burden it is to keep holding on to defaulted residential mortgages. Bank of America sold $215 billion in their home loans to Nationstar for a tiny $1.3 billion. As well as that deal they also got rid of $93 billion in unpaid mortgage accounts to Walter Investment Management for $519 million. I would say that both of these companies got a steal on the deal, but with the Basel III requirements that just went into effect Bank of America didn’t have much of a choice in the matter.
Basel III Capital Rules
Basel III is making it much more expensive to stay in the Mortgage game for a number of different reasons, and it is one of the main reasons that Bank of America is getting rid of a huge number of mortgages. For one thing the defaulted mortgages aren’t exactly upstanding accounts, and when you have a massive number of accounts like Bank of America, it is important to let some of them go.
Why They Say They Are Doing It
Bank of America says that in order to improve the quality of their customer service they need to reduce the number of accounts that they are holding on to. They also said that it is important for them to reduce the overall risk in their portfolio and the best way to do that is to cut away many of the legacy mortgages that the company has been holding on to. Even though that is why they say they are letting go of the mortgages, they are also costing them more than they are worth and that certainly had to be a consideration by the company when they decided to make the deals.
Effect on Share Prices
Letting go this number of shares obviously has a negative impact on the stock prices of Bank of America. Their shares dipped down to $11.92 on the following Tuesday, which is a pretty noticeable 1.4 percent drop in prices. There is going to be a very strong trend toward banking institutions for letting go of older mortgage accounts that are costing the companies more than they are helping them. At the rates that Bank of America is selling off its residential mortgages they are essentially giving them away and it will be interesting to see what other companies decide to follow suit soon as the new regulations make it more difficult to hold onto those loans at all.