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
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.