Bank of America on Monday said it has agreed to pay Freddie Mac $404 million to settle remaining claims over soured home loans the bank sold to the mortgage giant, marking the bank’s latest attempt to put its mortgage woes behind it.
The Charlotte bank said the accord means it has resolved all outstanding mortgage-repurchase claims with government-controlled Freddie and its sister institution, Fannie Mae. At the end of September, Bank of America had $1.4 billion in outstanding mortgage repurchase requests from Freddie, the most of any bank.
Bank of America said the agreement resolves all requests to buy back defective mortgages sold to Freddie from Jan. 1, 2000, to Dec. 31, 2009. The bank said the cost of the settlement is covered by its existing reserves.
Freddie and Fannie buy home loans from lenders and package them into mortgage-backed securities. Fannie and Freddie, which were taken over by the U.S. government in 2008, have asked banks to buy back or reimburse losses related to mortgages that went bad or did not meet agreed-upon requirements.
Monday’s agreement marks the second deal stemming from the financial crisis involving Bank of America and Freddie over home loans sold to the mortgage giant. The first, reached in December 2010, resolved mortgage repurchase claims involving loans sold by Countrywide Financial Corp. through 2008. Monday’s agreement involves loans originated by Bank of America, not Countrywide.
Bank of America acquired Countrywide in 2008.
Monday’s agreement releases Bank of America from the obligation to repurchase 716,000 loans, Freddie Mac said. The deal gives Bank of America credit for $13 million it has already paid Freddie, including for prior loan repurchases, resulting in a net payment of $391 million.
The latest agreement does not cover loan servicing obligations, loans packaged into bonds by other securitizers and disclosure-related claims, the bank said.
Monday’s deal adds to more than $40 billion in legal costs Bank of America has incurred stemming from the crisis. At an investor conference in New York last month, Bank of America CEO Brian Moynihan said the bank still has “work to do on litigation.”
In one pending lawsuit, filed by the Federal Housing Finance Agency, Bank of America is being accused of misrepresentation on mortgage-backed securities that were sold to Fannie and Freddie and resulted in losses to the two agencies when the mortgages went into default. In October, FHFA announced a $5.1 billion settlement with JPMorgan over mortgages and mortgage-backed securities the company sold to Fannie and Freddie.
Bloomberg News has reported that Bank of America could face a $6 billion settlement to resolve the FHFA lawsuit. No settlement has been announced.
In a separate case, Bank of America is still waiting to learn whether its proposed $8.5 billion settlement with investors who bought mortgage bonds issued by Countrywide Financial will be approved. The proposal is in a judge’s hands in New York.
Monday’s accord is not the largest settlement amount the bank has paid Freddie. In the December 2010 deal, the bank paid Freddie $1.28 billion and Fannie $1.34 billion. In January, the bank entered into an agreement with Fannie over home loans originated and sold to Fannie from Jan. 1, 2000, to Dec. 31, 2008, by Countrywide and Bank of America. Under that agreement, the bank paid $3.6 billion to Fannie and $6.6 billion to buy back loans sold to Fannie.
David Hilder, an analyst with Drexel Hamilton, said Monday it’s hard to estimate how much in legal expenses stemming from mortgage claims Bank of America will ultimately face.
“My own feeling is that I think they’re more than halfway done in settling the entire range of mortgage-related litigation claims,” he said. “Even BofA’s own numbers would suggest that they’re at least 80 percent done.”
Bank of America shares were down less than a percentage point Monday, closing at $15.73.
Roberts: 704-358-5248; Twitter: @DeonERoberts
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