Financial giant Bank Of America Corp. said Monday that it has reached a $11.6 billion settlement with Fannie Mae (FNMA.OB), resolving some of the mortgage issues that have lingered since the financial crisis.
Fannie Mae, also known as the Federal National Mortgage Association, is a government-sponsored business set up to help extend home ownership. It was one of the companies at the center of the mortgage loan crisis in 2008.
Monday's settlement allows Bank of America to resolve agency mortgage repurchase claims on loans originated and sold directly to Fannie Mae over eight years between January 1, 2000 through December 31, 2008.
The settlement will lead to charges taken against the company's fourth-quarter earnings.
The loans were sold to Fannie Mae by entities related to Countrywide Financial Corp., a mortgage firm that Bank of America acquired in 2008, as well to Bank of America, NA. These loans had an aggregate outstanding unpaid principal balance of $297 billion as of November 30, 2012.
As part of the deal, Bank Of America said it will pay Fannie Mae $3.55 billion in cash and also repurchase about 30,000 residential mortgage loans for an additional $6.75 billion. The settlement will resolve representations and warranties claims.
The bank will also sell the servicing rights on 2.0 million residential mortgage loans, totaling about $306 billion in aggregate unpaid principal balance. Fannie Mae has agreed to allow Bank of America to transfer the servicing of about 941,000 loans from Bank of America to two specialty servicers, Nationstar Mortgage Holdings, Inc. and Walter Investment Management Corp.
To resolve all of Fannie Mae's outstanding and future claims for loan servicing compensatory fee obligations, Bank Of America agreed to make a cash payment of $1.3 billion to Fannie Mae.
Bank of America said the deal will cover mortgage loans with $1.4 trillion of original unpaid principal balance, and also substantially resolve outstanding claims for compensatory fees.
"As we enter 2013, we sharpen our focus on serving our three customer groups and helping to move the economy forward," Bank of America CEO Brian Moynihan said in a statement.
He added, "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."
Bank of America said the $10.3 billion payment is expected to be covered largely by existing reserves. It will also include a pre-tax total of $2.5 billion in representations and warranties provision recorded in the fourth quarter of 2012.
The bank added that the additional $1.3 billion cash payment is expected to be covered by existing reserves, with an additional provision of $260 million recorded in the fourth quarter of 2012.
The mortgage related items are expected to reduce Bank of America's pretax income by about $2.7 billion in the fourth quarter of 2012. The bank's fourth-quarter results are also projected to be negatively impacted by $2.5 billion pre-tax for the independent foreclosure reviews, litigation, and other mortgage-related matters.
Despite the charges, the bank is projected to report modestly positive earnings per share for the quarter.
In Monday's regular trading session, BAC is currently trading at $12.18, up $0.07 or 0.58% on a volume of 53.01 million shares after hitting a 52-week high of $12.20 in early deals.
by RTT Staff Writer
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