Bank of America to Pay $3.6B to Settle Residential Mortgage Loan Issues

Bank of America to Pay $3.6B to Settle Residential Mortgage Loan Issues

CHARLOTTE, N.C. - (Mealey's) Bank of America Corp. will pay $3.6 billion to Fannie Mae and repurchase $6.75 billion in certain residential mortgage loans sold to Fannie Mae to resolve certain issues "relating to the origination, sale and delivery of substantially all residential mortgage loans originated and sold directly to Fannie Mae from January 1, 2000 through December 31, 2008 by entities related to Countrywide Financial Corporation (legacy Countrywide) and Bank of America, National Association," according to a Bank of America press release issued Jan. 7.

According to the press release, Bank of America has also signed "definitive agreements with two counterparties to sell the servicing rights on certain residential mortgage loans serviced for Fannie Mae, the Federal Home Loan Mortgage Corporation (Freddie Mac), the Government National Mortgage Association (Ginnie Mae), and private label securitizations, with an aggregate unpaid principal balance of approximately $306 billion.  Transfers of servicing rights are subject to the approval or consent of certain third parties."

According to the press release, the sales involve about 2 million loans serviced by Bank of America, "including approximately 232,000 loans classified as 60+ day delinquent first mortgage loans."

$1.4 Trillion

"The agreements with Fannie Mae cover loans with an aggregate original principal balance of approximately $1.4 trillion and an aggregate outstanding principal balance of approximately $300 billion," according to the press release.

"Unresolved claims by Fannie Mae for alleged breaches of selling representations and warranties with respect to these loans totaled $11.2 billion of unpaid principal balance at September 30, 2012.  These agreements extinguish substantially all of those unresolved claims, as well as any future representations and warranties claims associated with loans sold directly to Fannie Mae from January 1, 2000 to December 31, 2008, subject to certain exceptions which Bank of America does not expect to be material."

In addition to the $3.6 billion case payment and $6.75 billion repurchase of residential mortgage loans, Bank of America has also agreed to make a cash payment to Fannie Mae to settle "substantially all of Fannie Mae's outstanding and future claims for compensatory fees arising out of past foreclosure delays.  This payment is expected to be covered by existing reserves and an additional provision of $260 million (pretax) recorded in the fourth quarter of 2012.  Together, these actions described above are expected to reduce Bank of America's pretax income by approximately $2.7 billion in the fourth quarter of 2012."

Mortgage Insurance

"The Fannie Mae agreement also clarifies the parties' obligations with respect to mortgage insurance, including by establishing timeframes for certain payments and other actions, as well as parameters for potential bulk settlements and by providing for cooperation in future dealings with mortgage insurers," according to the press release.

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