Why Bank of America Corp (BAC) May Be Stumbling for a While

Today is the longest day of the year for the Northern Hemisphere — and it’s looking like it will be a long day for Bank of America Corp (NYSE:BAC) on the trading floor. The bank lost 4% just as the second hour of trading was getting under way, but it has since recovered slightly and sits at a loss of 1.39% as of 2:45 p.m. EDT. Some new allegations involving mortgages may be just the newest hurdle the bank and its investors are facing.

Yesterday’s news
Of course yesterday was the first full day of trading since the market learned of the Fed’s intentions for its current quantitative easing policy. And Mr. Market had a bit of a melt down. But we also learned yesterday that the housing market recovery is moving along quite nicely, with May sales of existing homes rising 4.2% since April and a staggering 12.9% since the previous year.

New home construction needs to pick up in order to meet the higher demand, which has reached levels the market hasn’t seen since 2009, but it’s all around good news for the economy and banks. With the top mortgage lenders, Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM), likely to leverage their huge market share to gain new business, investors are showing their confidence in the banks, driving Wells Fargo & Co (NYSE:WFC) 1.35% higher and giving JPMorgan Chase & Co. (NYSE:JPM) a chance at breakeven this morning.

Bank of America Corp (NYSE:BAC) and rival Citigroup Inc (NYSE:C) aren’t benefiting from the housing boost. Citigroup Inc (NYSE:C) is the smallest player in the mortgage market of the Big Four, so there was little upside movement this morning. Bank of America Corp (NYSE:BAC), on the other hand, has been trying to capture a larger share of the mortgage pie, but new allegations may thwart its efforts and drive investors, customers, and others away.

The lying game?
We recently learned that Bank of America Corp (NYSE:BAC) employees were allegedly incentivized to stall qualified foreclosure applications in order to generate more fee income. As that revelation came to light, the bank’s reputation was once again in jeopardy of losing customer confidence, which could keep potential new mortgage customers from working with the bank. Now, a new investigation has revealed that mortgage servicers, such as Bank of America Corp (NYSE:BAC), were misrepresenting the underlying mortgages in mortgage-backed securities to the trustees holding the mortgage bonds.