Following a series of escalating battles between the giants of the housing loan market over billions in financial losses, Bank of America reported on February 23 that they will no longer sell new mortgages to Fannie Mae.

Real estate analysts believe this act underscores the increasing tensions between these two companies, currently locked in an extended legal battle. The main issue at hand? Bank of America is having to buy back numerous defaulted mortgages from Fannie Mae on account of the original loans did not abide by proper underwriting standards.

Guy Cecala, publisher of trade publication Inside Mortgage Finance, describes this as a big deal within mortgage circles. He goes on to say, “It would be fairly extreme for a small or midsized lender to do this, but for a major lender, it’s very extreme.”

Fannie Mae, a large government-sponsored mortgage finance enterprise, is responsible for packaging bank-provided mortgage loans into securities which are then sold to investors. Almost 40 percent of all U.S. mortgages are backed by Fannie Mae.

According to Inside Mortgage Finance, Bank of America was Fannie Mae’s third-largest lender last year – providing them with $37.7 billion in mortgages. Bank of America has adamantly promised that this decision will in no way negatively affect their customers’ business or the credit available to them.

To make up for the loss of their most sizeable backer, Bank of America has said they will look to other government-sponsored mortgage buyers, including Freddie Mac and Ginnie Mae. The company also believes they will find backing support in the private sector and, at the end of the day, they still have a considerable balance sheet at their disposal.

Lawrence Di Rita, a spokesperson for Bank of America, says, “We will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing market recovery.” Di Rita also added that Bank of America will still participate in homeowner assistance, in part by employing the federal government’s loan modification program.

What does this mean for Chicago home owners and buyers? At this time, there is no clear indication if or how local markets maybe affected. It seems the current threat is to stakeholders in Bank of America, whose shares fell at one point by $5.