In an endeavor to get ahead of mortgage-related woes from the financial crisis, mortgage giant ""Bank of America"":https://www.bankofamerica.com/ has offered to sell a chunk of its mortgage portfolio servicing rights to GSE ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home, according to the ""_Wall Street Journal_"":http://online.wsj.com/article/SB10001424053111904007304576498793010276516.html?mod=WSJ_Banking_leftHeadlines. The sale of rights for bad loans to the government entity may shift new bulk onto federal balance sheets at a time when the GSE recently posted second-quarter losses and announced plans to petition the government for more taxpayer funds.[IMAGE]
Reached Friday, the deal, with a price purchase worth over $500 million, will give Fannie the right to go through and assemble payments for a group of some 400,000 loans, according to ""_Reuters_"":http://www.reuters.com/article/2011/08/10/bankofamerica-fanniemae-idUSL3E7J95EM20110810, quoting the newspaper. The unpaid principal balance for the loans: $73 billion.
According to ""_The Business Journal_"":http://www.bizjournals.com/triad/news/2011/08/10/bank-of-america-sells-loan-servicing.html, also pulling from the News Corp. publication, the servicing rights handoff will help Bank of America ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the fourth largest bank as measured on the strength of total deposits ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô resolve and taper off problems it encountered with mortgage-backed securities in the Countrywide Financial purchase.[COLUMN_BREAK]
Reuters said the _Journal_ reported that the transfer of rights to Fannie will begin in September and take place over four months, starting with the transition of the first 100,000 loans.
It remains unclear how the Bank of America mortgage portfolio sale will impact agency debt at Fannie, which posted $2.9 billion in net losses for second-quarter earnings and announced plans to request $5.1 billion from taxpayers in a recent ""Securities and Exchange Commission"":http://www.sec.gov/ filing.
Speaking to _MReport_, Edward Pinto, a resident fellow with the ""American Enterprise Institute"":http://www.aei.org/, labels federal guarantees for mortgage-backed securities a threat to the overall economic recovery.
""The more of this government-guaranteed debt"" Fannie and ""Freddie Mac"":http://www.freddiemac.com/ possess, he says, ""the bigger the supply, and the bigger the impact it will have on interest rates, particularly those controlled by the ""Federal Reserve"":http://www.federalreserve.gov/.""
He cites some $5 trillion of public debt outstanding for the GSEs, a combination of mortgage-backed securities and ventures that he says competes with U.S. Treasury debt for attention from investors.
Lenders traditionally benchmark mortgage rates against Treasury yields, which plummet when investors buy government bonds.
""The Freddie-Fannie agency debt is competing with Treasury debt and driving the costs of interest rates and prices down,"" Pinto says.