Twenty-four hours after Bank of America told Fannie Mae to take a hike on secondary market purchases, the realization is starting to sink in that one party — the GSE — may stand to lose a lot more than the seller/servicer.

According to analysis of Home Mortgage Disclosure Act information by ASR sister publication National Mortgage News, BofA is Fannie's second largest customer behind Wells Fargo & Co.

In 2010, BofA sold $53 billion of loans to the GSEs, or about 40% of its total origination base. (Wells sold $77 billion to Fannie.) Of course, it might be argued that those numbers are a year old and that BofA is sinking fast in terms of loan volume (on purpose).

Still, according to ASR sister publication National Mortgage News and the Quarterly Data Report, the bank is producing roughly $20 billion of new loans per quarter – almost all of it through retail means. Moreover, it might be argued that the product being originated is of the highest quality – ever.

Also, given the ultra low interest rates of today, it's safe to say the chances of these mortgages “running off” due to refinancings is next to nil. There's also the MSR value to consider.

It's expected that instead of selling its conventional production to Fannie, quite a bit of that volume will wind up over at Fannie's arch rival, Freddie Mac. (Some will go to Ginnie Mae, the rest to the bank's balance sheet – or so a bank spokesman told this publication.) Both GSEs are operating under conservatorships and still need taxpayer support.

Former GSE officials and others note that the split between the two boils down to disagreements over the severity of buyback claims. According to Securities and Exchange Commission documents, BofA still has exposure on roughly $14.3 billion of loans, a nice chunk of that with Fannie.

One former Fannie executive told NMN that Thursday's split did not come as a total surprise. “My guess is continued hardball on repurchase exposures led Fannie to withdraw the few remaining variances they had,” said this executive, requesting anonymity. “So, they went to Freddie where they are fully settled out on CHL [Countrywide Home Loans] book exposures.”

The exposures refer to a legal settlement on buybacks between Freddie and BofA, tied to old Countrywide Financial Corp. (CFC) legacy loans. BofA bought CFC in August 2008 and inherited that lender's secondary market exposure.

One former stock analyst who covered both the GSE and CFC said of the situation: “I wonder if moving to Freddie will really do anything given that both Freddie and Fannie are in conservatorship and the FHFA is there to minimize losses for both companies.”

He added: “I doubt Fannie really cares that BAC left since it no longer has any profit incentive. If Fannie was thinking of cutting BAC off for not buying back loans, I assume the FHFA can direct Freddie to not do business with BAC until BAC takes care of its obligations.”

Fannie Mae declined to comment for this story as did Freddie Mac.

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