8:44 a.m. | Updated
Bank of America agreed on Monday to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank’s Countrywide Financial subsidiary.
Under the terms of the pact, Bank of America will pay Fannie Mae $3.6 billion, and will also spend $6.75 billion to buy back mortgages from the housing finance giant at a discount to their original value.
The settlement will resolve all of the lender’s disputes with Fannie Mae, removing a major impediment to Bank of America’s rehabilitation. The bank had settled its fight with Freddie Mac, the other government-owned mortgage giant, in 2011.
Both Fannie and Freddie, which have posted billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble. Bank of America assumed those troubles when it bought Countrywide in 2008.
By removing part of the bank’s mortgage albatross, the move on Monday is a continued retreat from home lending by Bank of America, even as rivals including JPMorgan Chase and Wells Fargo compete for the profitable refinance business that has boomed with interest rates persistently low.
Bank of America also agreed to sell the servicing rights on about $306 billion worth of home loans to other firms. In separate statements, Nationstar Mortgage Holdings and the Newcastle Investment Corporation announced they were buying the rights. Those servicing costs, which were roughly $3.4 billion in the third quarter, have weighed on the bank’s profits, especially as borrowers fall behind on their bills.
Brian T. Moynihan, the bank’s chief executive, said in November that he intended to sell off about two million loans the bank currently serviced.
“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Mr. Moynihan said in a statement on Monday.
Bank of America said it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion because of costs tied to foreclosure reviews and litigation. The firm also expects to record a $700 million charge, an accounting move known as a debt-valuation adjustment, related to an improvement in the prices of its bonds.
The deal on Monday helps the bank move away from its troubled mortgage business. Still, the bank’s attempts to resolve other costly mortgage litigation have so far been stymied. Looking to appease investors that sued the bank for losses when mortgages packaged into securities imploded during the financial crisis, the bank agreed to pay $8.5 billion in June 2011. But the settlement, which would help mollify investors including the Federal Reserve Bank of New York and Pimco, has been stalled.
Further thwarting Bank of America’s retreat from the mortgage business, federal prosecutors sued the bank in October, accusing it of churning through loans so quickly that quality controls were virtually forgotten. The Justice Department sued the bank under a law that could mean Bank of America could pay well more than $1 billion to settle.
Bank of America is among 14 banks said to be negotiating with federal regulators to resolve such claims related to foreclosure abuses.
Ben Protess contributed reporting.
Article source: http://dealbook.nytimes.com/2013/01/07/bank-of-america-to-pay-10-billion-in-settlement-with-fannie-mae/?partner=rss&emc=rss
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