Bank of America to pay $9.3 billion to settle mortgage bond claims

WASHINGTON Wed Mar 26, 2014 9:47pm EDT

A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake

A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014.

Credit: Reuters/Mike Blake

WASHINGTON (Reuters) - Bank of America agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping the bank to end one of the largest legal headaches it still faced from the financial crisis.

The settlement, announced on Wednesday, includes $6.3 billion in cash and the rest in securities that Bank of America will purchase from the two housing finance entities.

The second-largest U.S. bank by assets said it had now resolved around 88 percent of its total exposure to securities at issue in the mortgage bond litigation it has faced.

Bank of America's first-quarter profits could take a substantial hit from the deal. The bank said the settlement was expected to reduce first-quarter income by about 21 cents a share, or three-quarters of what analysts surveyed by Thomson Reuters I/B/E/S forecasted the bank to earn before the settlement was announced.

Also on Wednesday, Bank of America and its former chief executive, Kenneth Lewis, settled a lawsuit by New York's attorney general that alleged it misled investors about mounting losses at Merrill Lynch & Co, which the bank agreed to acquire at the height of the financial crisis.

Lewis, who resigned in 2009, agreed to pay $10 million and be barred for three years from serving as an officer or director of a public company. Bank of America agreed to pay $15 million and adopt corporate reforms. Both payments will cover the costs of New York's investigation, and neither Lewis nor Bank of America is admitting wrongdoing or paying damages.

Bank of America still faces a lawsuit from the U.S. Justice Department and several other probes by the DOJ and states over mortgage-backed securities it sold during the housing boom. On Wednesday, the bank said it has had "preliminary discussions" to resolve the matters.

'REASONABLE AND PRUDENT'

The new settlement with Fannie Mae and Freddie Mac resolves lawsuits filed against Bank of America, Merrill Lynch, and Countrywide, the subprime mortgage lender it bought at the height of the financial crisis.

The regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency, had accused the bank of misrepresenting the quality of loans underlying residential mortgage-backed securities purchased by the two mortgage finance companies between 2005 and 2007.

The two taxpayer-owned firms have operated under conservatorship since 2008, when they were seized by regulators after losses on subprime loans pushed them toward insolvency.

It was the 10th settlement that the FHFA has reached in litigation that began in 2011 when it filed 18 lawsuits over about $200 billion in mortgage-backed securities, an investment product at the center of the recent global financial crisis.

Many of the settlements were reached after a series of court rulings that went against the banks.

"FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement," FHFA Director Mel Watt said in a statement.

So far, the FHFA has recovered more than $10 billion from banks by asserting similar claims over mortgage securities. Seven other banks still need to resolve similar lawsuits.

Merrill Lynch would have been the first of the banks with legal disputes still pending to face trial, with a date of June 2.

U.S. District Judge Denise Cote has scheduled September trial dates for Goldman Sachs Group Inc and HSBC Holdings plc.

(Reporting by Margaret Chadbourn and Aruna Viswanatha in Washington and Nate Raymond and Peter Rudegeair in New York; Editing by Jonathan Oatis, Lisa Shumaker and Peter Cooney)

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Comments (6)
DWebster wrote:
$9.3 billion is PEANUTS compared to the profits BoA raked in!

Is this yet another WHITEWASH by the Dept. of Justice? – and I use the word “justice” very loosely here.

How about some PROSECUTIONS of top-level BoA officials, with lengthy PRISON SENTENCES if convicted!

-Dave

Mar 26, 2014 10:08pm EDT  --  Report as abuse
jars13 wrote:
Here is why BOA didn’t credit my last 15 payments, claimed I was in a modification I wasn’t ; where they claim I owe double what my house was worth during the boom. Thanks again Bank of America for the help you promised when I was injured and using my 25 years of retirement ( MERS putting it to the US tax payer to take our houses.) Now the MERS ( system banks made up to cause the housing crisis ) system is going into car loans. Mers holds over 65 million consumers information that is being sold to solicitors online now. Too bad this story is closer to; Government gets paid from the banks to have a run on homeowners.

Mar 27, 2014 7:48am EDT  --  Report as abuse
Thepipe wrote:
Somebody still needs to go to jail … and not some mid-level scapegoat either.

Mar 27, 2014 8:46am EDT  --  Report as abuse
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