Of all the mortgage woes at Bank of America, one of the less-publicized ones could turn into one of the most expensive: home-equity loans.
From the beginning of 2008 through the first quarter of this year, the Charlotte bank has racked up $18.5billion in home-equity loan losses, according to an analyst report last week. That was about 40 percent of the bank's $46billion in housing-related losses so far, and more than any other category.
By the end of 2013, the bank could post an additional $27billion in losses on housing-related issues for a total of about $73billion, according to the report. Of that, $24.8billion could come from home-equity loans, just shy of the $25.8billion that could come from investor requests to buy back soured home loans, a more high-profile issue.
"A tepid recovery in both employment and housing is keeping home equity on the table as a front-burner issue," Sanford C. Bernstein analyst John McDonald wrote in his report.
Home-equity loans or lines of credit are mortgages taken out on a property that are secondary to the first mortgage. As housing prices soared in the last decade, homeowners - often encouraged by banks - tapped their home equity as a way to finance renovations, vacations, credit card payments and other expenses.
Bank of America has been besieged by mortgage problems on multiple fronts, including high-profile regulatory investigations over foreclosure practices. Many of these struggles can be blamed on Countrywide Financial, the troubled lender the bank purchased in 2008.
But the home-equity losses are more of a homegrown issue. Of the bank's $133.6billion home equity portfolio, only $12.5billion in loans have Countrywide roots.
"Even without Countrywide, Bank of America was a big home-equity lender," said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication based in Bethesda, Md. "Countrywide just made it bigger."
In early 2006, as the housing market was cresting, Bank of America trumpeted the fact that it approved more home-equity loans than any other bank, part of a three-year effort to boost volume. Later, when housing prices plunged, the bank was caught off guard by rising losses on home equity loans and credit cards, former chief executive Ken Lewis told the Financial Crisis Inquiry Commission last fall.
"That is a major disappointment for me that our consumer loan portfolio in those two areas performed as poorly as that," he said.
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