Will Charlotte-based Bank of America benefit from a rosy housing outlook? Bloomberg Businessweek suggests the answer depends on the BofA executive responding to the question:
Bank of America is betting a recovery in home prices this year will allow it to avoid new losses on mortgage loans. That outlook clashes with the views of some independent analysts—and its own economist. Chief Executive Officer Brian T. Moynihan’s credibility is riding on the outcome as he seeks to convince investors that the lender can curb costs from bad mortgages. The bank had to book $3 billion in expenses in the past two quarters because it underestimated the slide in housing values. It says it may suffer $1.5 billion in losses for every four percentage points that home-price declines exceed its estimates for a market that Moynihan told shareholders on May 11 still faces “enormous challenges.”
While Bank of America does not disclose its home price forecast, spokesman Jerry Dubrowski says it is “close” to the average 1.4 percent decline predicted by 111 economists surveyed by research firm MacroMarkets. Neil Cotty, the bank’s chief accounting officer, said on an Apr. 15 conference call with analysts that home prices may begin a “gradual improvement over the second half.”
Cotty’s view is more optimistic than the one held by Michelle Meyer, the bank’s senior U.S. economist, who predicts the market won’t hit bottom until 2012. Meyer, whose arrival in August from Barclays Capital was accompanied by a news release praising her housing expertise, sees foreclosure sales as a drag in coming months. “There’s a long and painful path before the housing market looks normal,” she said in an Apr. 20 interview on Bloomberg Television. “Our view is that we’ll see a 5 percent drop in national home prices this year; it could be larger. The increased share of distressed sales will continue to exert downward pressure on home prices.”
