World and Nation

Bank of America breaks with Fannie Mae, can turn to other buyers

Bank of America said Thursday that it would no longer sell new mortgages to Fannie Mae, underscoring tensions in a fight between two giants of the home loan market over billions in losses in the housing bubble.

The latest move represents a major escalation in a protracted legal battle over how many defaulted mortgages Bank of America will have to buy back from Fannie because the original loans did not conform to proper underwriting standards, market experts said.

“In mortgage circles, it’s pretty big,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. “It would be fairly extreme for a small or midsized lender to do this, but for a major lender, it’s very extreme.”

As one of the large government-sponsored mortgage finance enterprises, Fannie Mae takes mortgage loans from banks and packages them into securities that can be sold to investors or held on its own balance sheet. Fannie Mae backs about 40 percent of mortgages in the United States.

Bank of America was Fannie’s third-largest provider last year, according to Inside Mortgage Finance. The bank originated $156.1 billion in mortgages last year, of which $37.7 billion were sold to Fannie, the trade publication said.

Bank of America insisted its customers would not be hurt by the decision and said it can make up for the loss of Fannie as a backer by turning to Freddie Mac or Ginnie Mae, other government-sponsored mortgage buyers.