* BofA to pay out more than $14 billion in settlements
* Other large banks sign deal on foreclosure reviews
* BofA shares touch nearly two-year high
By Rick Rothacker and Aruna Viswanatha
CHARLOTTE/WASHINGTON, Jan 7 Bank of America Corp
announced more than $14 billion of legal settlements
over bad mortgages it sold to investors and flaws in its
foreclosure process, taking the bank a step closer to ending the
home loan problems that have dogged it for years.
About $3 billion of Bank of America's Monday's settlements
were part of a larger $8.5 billion deal between 10 big mortgage
lenders and regulators to end a loan-by-loan review of
foreclosures mandated by the government.
Bank of America shares touched their highest level in nearly
two years as investors called it a good step toward ending the
company's multiple legal woes. The shares later retreated to
close down 0.2 percent at $12.09.
Analysts have estimated that Bank of America has paid out
some $40 billion for mortgage settlements since the crisis
began. Most of those losses stem from its 2008 purchase of
Countrywide Financial, once the largest subprime lender in the
But the bank is moving closer to the day when it can stop
worrying about mortgages and start focusing on growth, analysts
and investors said.
"It's a step in the right direction in terms of trying to
put these issues behind the company," said Jonathan Finger of
Finger Interests Ltd, a Houston, Texas-based investment firm
that owns 1.1 million of the bank's shares.
Besides the multibank foreclosure settlement, the second
largest U.S. bank also announced about $11.6 billion of
settlements with government mortgage finance company Fannie Mae
to end allegations the bank improperly sold mortgages
that later soured, and to resolve questions about foreclosure
Bank of America had already set aside money to cover most of
those settlements. The deal with Fannie wipes out 44 percent of
the buy-back requests the bank faced as of the end of the third
quarter. It also eliminates possible future repurchase requests
on about $300 billion in loans.
Bank of America's home loan problems are far from over,
though. It still needs court approval for an $8.5 billion
settlement with private investors and it is locked in litigation
with insurer MBIA Inc over mortgage-related claims.
The agreement also does not end a lawsuit the U.S. Justice
Department brought against the bank last year over Countrywide
and Bank of America loans sold to Fannie Mae and Freddie Mac,
the agency said. The suit accuses Countrywide and Bank of
America of causing losses to taxpayers of more than $1 billion.
"I think there is still quite a lot of litigation to go,
and I don't think we'll see the end of this for some time," said
Thomas Perrelli, a former top Justice Department official,
speaking of industrywide legal issues stemming from the
The settlement Bank of America, Citigroup Inc,
JPMorgan Chase & Co, Wells Fargo & Co and five
other banks entered with regulators pays out up to $125,000 in
cash to homeowners whose homes were being foreclosed when the
paperwork problems emerged.
About $3.3 billion of the $8.5 billion settlement with the
Office of the Comptroller of the Currency will be in cash, with
the rest in changes to the terms of loans or mortgage
In April 2011, the government required banks that collect
payments on mortgages, known as servicers, to review whether
errors in the foreclosure process had harmed borrowers.
The review focused on foreclosures from 2009 and 2010 and
looked at processes, including "robo-signing," where servicer
employees or contractors signed documents without first
That loan-by-loan review proved slow and expensive, the OCC
The reviews had already cost more than $1.5 billion. They
turned up evidence that around 6.5 percent of the loan files
contained some error requiring compensation, but most of those
errors involved potential payouts much less than $125,000, OCC
Other banks involved in the settlement include MetLife Bank
, Aurora Bank FSB, PNC Financial Services
Group Inc, Sovereign Bank NA, SunTrust Banks
Inc and U.S. Bancorp.
Wells Fargo said its portion of the cash settlement will be
$766 million, which will result in a $644 million charge when it
reports fourth-quarter earnings on Friday. The bank said it will
spend another $1.2 billion on foreclosure prevention actions,
which will not result in additional charges.
Citigroup, which reports earnings next week, said it will
take a $305 million charge for its cash payment portion of the
settlement, while existing reserves would cover $500 million in
loan forgiveness and other actions.
Housing advocates said they viewed the settlement as a
positive move as it ends a flawed review process and provides
some money, if limited, to consumers. But some advocates and
lawmakers expressed dissatisfaction with the pact and suggested
hearings could follow.
"I remain concerned that banks continue to avoid full
accountability, and I believe that borrowers deserve more
answers and transparency than the Federal Reserve and the OCC
are currently willing to provide," said Elijah Cummings, the top
Democrat on the House Oversight committee.
BOFA SELLS SERVICING RIGHTS
For Bank of America, the Fannie Mae deal was the much larger
of Monday's agreements.
Fannie Mae and sibling Freddie Mac essentially buy
mortgages from banks and package them into bonds for investors.
But during the mortgage boom, banks sold loans to the two
companies that Fannie Mae and Freddie Mac say should never have
been sold because, for example, borrowers had misstated their
income. The two mortgage finance companies are pushing banks to
buy back the loans.
On Monday, Bank of America also said it was selling the
rights to collect payments on about $306 billion of loans to
Nationstar Mortgage Holdings and Walter Investment
Management Corp. Reuters first reported on Friday that
Bank of America was talking to Nationstar and Walter Investment.
Investors appear to have decided the bank is on the right
track as its shares hit their highest level since May 2011 on
Monday. When Warren Buffett came to the bank's rescue in August
2011 with a $5 billion investment, he received warrants for 700
million shares of stock at $7.14 per share.