By Rick Rothacker and Tanya Agrawal
Jan 7 Bank of America Corp on Monday
entered an $11.6 billion settlement to end Fannie Mae's
claims that the bank improperly sold it mortgages that
later soured, and to resolve problems with foreclosures, the
The settlement is a major step for Bank of America toward
resolving claims from investors who want the bank to buy back
loans that its Countrywide Financial subsidiary sold to them
during the housing boom, many of which later went bad.
The agreement largely covers the $11.2 billion of claims
that government-owned finance company Fannie Mae had against the
bank, which represented about 44 percent of the bank's total
pending claims at the end of the third quarter.
Bank of America, which bought Countrywide in 2008, still
needs court approval for an $8.5 billion settlement with private
investors and is locked in litigation with insurer MBIA Inc
over mortgage-related claims.
The settlements, other charges, and a series of asset sales
the bank also announced Monday will result in Bank of America
posting only a small profit for 2012's fourth quarter. The bank
is due to report results on Jan. 17.
Bank of America is paying $3.6 billion to Fannie Mae and
buying back $6.75 billion of bad loans from the mortgage company
to clear up all claims that government-owned Fannie Mae had made
against the bank. Bank of America is buying the loans for the
value of their outstanding principle, and will immediately
record a loss on them.
The bank said the pact covers loans with a current balance
of about $300 billion and ends "substantially" all unresolved
claims on loans sold to Fannie from Jan 1, 2000 to December 31,
Fannie Mae and its sibling, Freddie Mac,
essentially buy mortgages from banks and package them into bonds
for investors. But in 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.
Bank of America said most of the repurchasing settlement
would be covered by reserves, and another $2.5 billion, before
taxes, that it set aside in the fourth quarter.
A separate settlement over foreclosure delays will result in
Bank of America paying $1.3 billion to Fannie Mae, the mortgage
company said. Bank of America had already set aside money to
cover most of that, but took another $260 million charge in the
fourth quarter to cover the balance.
Bank of America also sold the rights to collect payments on
about $306 billion of loans to Nationstar Mortgage Holdings
and Walter Investment Management Corp.
Nationstar is paying $1.3 billion for the right to service some
$215 billion of loans, while Walter Investment is paying $519
million for the right to service about $93 billion of mortgages.
Reuters first reported on Friday that Bank of America was
talking to Nationstar and Walter Investment. [ID: nL1E9C488L]
Bank of America is eager to reduce expenses in its mortgage
servicing unit, where costs have ballooned as the bank has hired
staff to work with customers behind on payments. The unit now
has nearly 42,000 employees, about 15 percent of the bank's
In a conference call with investors on Monday, Nationstar
CEO Jay Bray said the company could take on workers from Bank of
America as it builds staff to handle its increased workload.
At the end of December, Bank of America had 775,000 home
loans that were delinquent by 60 days or more, down from 936,000
loans at the end of September. After the latest sale, the bank
said this number will decline substantially.
The No. 2 U.S. bank by assets has lagged peers in recovering
from the financial crisis largely due to losses from its
disastrous Countrywide acquisition. The bank has paid more than
$40 billion to settle lawsuits and to buy back soured loans.
Two years ago, Bank of America reached settlements with
Fannie Mae and Freddie Mac over loan repurchase requests. The
pact with Freddie Mac covered all outstanding claims, but the
agreement with Fannie Mae covered only claims that were already
in the works. Fannie Mae later began sending new claims to the
bank over loans originated during the housing boom, spurring the
dispute between the two companies.
Bank of America said Monday it will take an additional $2.5
billion expense in the fourth quarter for a settlement with
federal regulators over improper foreclosures as well as other
mortgage-related matters.[ID: nL1E9C73S9] The results will also
include a $700 million charge related to the value of the bank's
debt and a $1.3 billion tax benefit.
Analysts had been expecting the bank to report earnings per
share of 19 cents in the fourth quarter, according to Thomson
Bank of America's shares were flat at $12.11 in morning