FIN419 Financial Outcomes

FIN419 Financial Outcomes - F inancial Outcomes 1 Financial...

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Financial Outcomes 1 Financial Outcomes Finance for Decision Making FIN/419
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Financial Outcomes 2 Bank of America is a global financial services company that provides financial needs and assistance to consumers, businesses, and investors. The vision of Bank of America is to be the world’s finest financial services company. The downturn in the economy forced many institutions to change their financial structure and goals to maintain financial stability and security. Bank of America has enacted initiatives to sustain the financial strength of the company through economic downfalls. Bank of America must continue to have financial strength to provide financial needs for people, businesses, and investors. One initiative outlined in the Bank of America 2010 annual report is to clean up legacy issues related to the economic downturn, primarily in the mortgage business. The economic recession continues to affect many families. Millions of families have become delinquent on their mortgage payments because of the economic downturn. Bank of America enacted this initiative to help as many customers as possible remain in their homes. Creating value, support, and financial assistance to shareholders is a goal Bank of America hope to continue to achieve. Problem Borrowers “With an estimated 11 million people underwater on their mortgage, (owing more on their mortgage than their home is worth), even the most credit-worthy consumers are considering walking away from their mortgage” (McHood, p. 1, 2011). A new term entered the mortgage market when real estate problems emerged in 2007. The term, strategic default , refers to someone who owns a home worth less than the mortgage on the property. First American Logic, a company providing information, analytics, and business services targeted to property managers, did a study that suggests when a home falls below 75%
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Financial Outcomes 3 of the amount owed on the mortgage, the homeowner begins to think about walking away, even if he or she can pay for the mortgage (Epstein, 2010). Many mortgage lenders, including Bank of America, offer borrowers the opportunity to pay less than they owe on current mortgages. A recent article in the New York Times writes about $150,000 discount offered to a homeowner on her mortgage deemed at risk by Bank of America (Streitfeld, 2011). These risks outline many risks lenders have with outstanding mortgages in today’s real estate market. Bank of America states in its 2010 10(k) report to the SEC that they paid $2.8 million in 2010 to Fannie Mae (FNMA) to resolve repurchase claims involving first-lien residential mortgage loans. Most of these loans are legacy loans from Bank of America’s purchase of Countrywide Mortgage. Bank of America also states that $7-10 billion in additional problem mortgages exist in their mortgage portfolio. Problems continue in residential real estate as out of work borrowers and homeowners
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN419 Financial Outcomes - F inancial Outcomes 1 Financial...

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