Bank of America Corp (BAC): 3 Reasons to Hate the Report

There’s no doubt about it: Investors have been waiting with bated breath for the Bank of America Corp (NYSE:BAC) earnings report, hoping for the best news yet. Considering how feisty the stock was yesterday, I believe there was a lot of faith in the progress that has been made over the past year or so at the big bank.

B of A’s first-quarter earnings report contained much good news, but there are still headwinds facing the bank, which make the future look less than rosy. Here are three of the biggest issues that Bank of America (NYSE:BAC) will have to resolve in order to continue with its forward momentum.

Earnings miss shows lack of mortgage income
While the report noted the great strides made by Project New BAC, CEO Brian Moynihan’s cost-cutting extravaganza, investors were doubtless looking to see a more headway being made in the income part of the equation — particularly the mortgage-writing department.

Despite the fact that the earnings per share miss was slight — the $0.20 figure was $0.02 shy of estimates — it points up the fact that Moynihan’s promise to step up mortgage lending didn’t really pan out.

Bank of America Corp (NYSE:BAC)The bank’s Consumer Real Estate Services unit showed a net loss of $1.3 billion in the first quarter, compared with a $1.1 billion net loss in the year-ago period. Though part of the issue here was lower servicing income, B of A’s mortgage business consisted primarily of refinances: 91%, compared to only 9% for home purchase loans.

Both JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) also noted the mortgage slowdown, with Wells showing an obvious decrease in that sector. While JPMorgan did increase its volume year over year, CEO Jamie Dimon commented that things in that area are cooling off for the entire industry. This doesn’t bode well for Moynihan’s plant to goose earnings via stepped-up mortgage lending.

Legal woes aren’t abating
Litigation expenses dropped a bit from the last quarter, but were up year over year. This is one of the major issues dragging the bank down, and it doesn’t look like this will be the year that Bank of America Corp (NYSE:BAC)finally gets ahead of this problem. In addition to its long-standing Countrywide woes, the bank may now be facing a torrent of homeowner lawsuits regarding kickbacks from mortgage insurers after a recent court ruling allowing such suits to move forward.