The Invisible Hole in Bank of America Corp (BAC)’s Balance Sheet

It’s for this reason B of A is aggressively shedding its third-party servicing portfolio. From a peak of $1.73 trillion in the third quarter of 2009, it had declined to $1.05 trillion by the end of last year. In addition, it’s set to shrink significantly more this year. At the beginning of January, B of A penned a deal with Nationstar Mortgage Holdings and Walter Investment Management (NYSE:WAC) in which the mortgage-servicing companies agreed to acquire the servicing rights on residential mortgages with an aggregate unpaid principal balance of $306 billion. Two days later, Reuters reported that B of A is looking to sell the collection rights on “at least another $100 billion.”

Source: Bank of America’s regulatory filings.

The moral of the story is this: If you’re either a current or prospective investor in B of A, this is an area you’ll want to watch closely. The sooner B of A rids itself of the duty to service toxic mortgages originated by Countrywide and owned by legitimately aggrieved institutional investors, the sooner it can turn its attention exclusively to mopping up the still-considerable legal exposure it faces. And the sooner it can do that, the sooner shareholders will benefit in spades from the bank’s progress over the last three years.

The article The Invisible Hole in Bank of America’s Balance Sheet originally appeared on

John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

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