Bank of America inks settlement with Fannie Mae
Is this the definitive settlement that will allow Bank of America to convince the world that its nasty putback controversy with Fannie Mae has been dealt with?
It's fair to say that the bank's cantankerous relationship with the big GSE had been viewed as a negative by many, the major unresolved dispute and a big legal risk. So it will be seen as good news by many analysts that the bank has resolved the legal issues between the two.
The bank has agreed to pay Fannie Mae $3.6 billion and to pay another $6.75 billion to buyback various toxic mortgages. The bank expects the settlement will be paid for by existing reserves and an additional $2.5 billion (pretax) in representations and warranties provision to be recorded in the fourth quarter. The bank will also make a cash payment to settle issues related to foreclosure delays that will results in a $260 million hit for the fourth quarter.
The agreements with Fannie Mae cover loans with and an aggregate outstanding principal balance of approximately $300 billion. Unresolved claims by Fannie Mae for alleged breaches of selling representations and warranties totaled $11.2 billion of unpaid principal balance at September 30, 2012. In addition, Bank of America announced it will sell the servicing rights on 2.0 million residential mortgage loans totaling approximately $306 billion. A settlement with Freddie Mac was signed in 2011.