Bank Of America In $10B Mortgage Settlement With Fannie Mae
BofA says Monday’s settlement will hit pre-tax fourth-quarter earnings by $2.7 billion, but that it still expects modestly positive earnings per share for the October-December period. The bank will fund the total payments of $10.3 billion to Fannie Mae via existing reserves and additional rep and warranty reserves of $2.5 billion put aside in the fourth quarter. (Read the bank’s full announcement here.)
Additionally, BofA will sell servicing rights on 2 million loans with a principal balance of $306 billion to two separate counterparties, Nationstar Mortgage Holdings and Newcastle Investment Corporation.
CEO Brian Moynihan said the agreements with Fannie Mae “are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time.”
Fannie Mae General Counsel Bradley Lerman said the agreement “is in the best interest of taxpayers,” drawing the long-standing dispute to a close. “Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests.”
The deal comes after BofA settled a similar dispute with Freddie Mac in 2011 with a $1.4 billion payment that was heavily criticized by government watchdogs. The bank still has unresolved litigation related to mortgage-backed securities with a group of private parties including the Federal Reserve Bank of New York, BlackRock and PIMCO.
Those negotiations seemed to be wrapping up in 2011, when the parties reached an $8.5 billion settlement, but are still ongoing 18 months later.
Shares of Bank of America rallied in pre-market trading but were off their highs shortly before the opening bell. The stock was pointing toward a positive start though, likely to mark fresh 52-week highs above $12.15.