TEXT-S&P: Bank of America ratings unaffected by Fannie Mae agreement
Jan 7 - Standard & Poor's Ratings Services today said its ratings on Bank of America Corp. (BofA; A-/Negative/A-2) are not affected by the company's agreement to resolve certain agency mortgage purchase claims the Federal National Mortgage Association (Fannie Mae) made. The agreement and other events BofA announced during the quarter are neutral to our ratings because, although significant amounts of legacy issues are resolved, sizeable amounts remain. We see BofA as remaining opportunistic in continuing to reduce legacy mortgage exposures in 2013. This should result in reduced exposures and earnings volatility in the future, but the costs may be reflected in continued charges and, therefore, earnings volatility over the next several years or so. Today's announced agreement covers $300 billion in outstanding loans ($1.4 trillion in original principal balance) and unresolved claims made by Fannie Mae to BofA for alleged breaches of selling representation and warranties with respect to $11.2 billion of unpaid principal balances as of Sept 30, 2012. BofA also agreed to repurchase $6.75 billion of certain residential mortgage loans it sold to Fannie Mae from 2000-2008. At the same time, BofA announced definitive agreements to sell about 20% ($306 billion of unpaid principal balances) of its mortgage servicing rights portfolio. In addition to the above events, BofA will, in the fourth quarter, take charges of $2.5 billion (pretax) associated with independent foreclosure reviews--primarily mortgage-related litigation and other mortgage-related matters. Partially offseting these charges are $1.3 billion of foreign tax credit benefits. After all these items, the company anticipates modest reported net income for the fourth quarter. Notably, BofA announced the reduction of its estimate for the possible loss above existing accruals for both government-sponsored entity (GSE) and non-GSE representation and warranty exposures as of Dec. 31, 2012, to $4 billion from $6 billion at the end of the previous quarter.