(Adds statement from Bank of America, FHFA Director Mel Watt,
By Margaret Chadbourn and Aruna Viswanatha
WASHINGTON, March 26 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 $3.2 billion 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 is
expected to reduce first-quarter income by about 21 cents per
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 the bank agreed to pay $15 million to
resolve a long-running lawsuit from the New York Attorney
General over its 2009 acquisition of Merrill Lynch &
It 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
U.S. District Judge Denise Cote has scheduled September
trial dates for Goldman Sachs Group Inc and HSBC Holdings
(Reporting by Margaret Chadbourn and Aruna Viswanatha in
Washington and Nate Raymond and Peter Rudegeair in New York;
Editing by Jonathan Oatis and Lisa Shumaker)