BofA will take $2bn charge to settle Fannie and Freddie loan claims
Published 04/01/2011 | 05:00
Bank of America will take an approximately $2bn (€1.49bn) charge in its fourth quarter as it settles buyback claims on home loans sold to Fannie Mae and Freddie Mac.
The bank said yesterday it also expected to take a provision of about $3bn in the quarter related to repurchase obligations on the home loans.
Bank of America shares jumped 4.4pc in pre-market trading on the news.
On Friday, Bank of America paid Fannie Mae $1.34bn and Freddie Mac $1.28bn as part of the settlements.
The deals are tied to Countrywide Financial Corp residential mortgage loans. Bank of America bought Countrywide in July 2008.
Buyback claims are an ongoing issue for the financial industry, with Ally Financial announcing last week it would pay $462m to settle buyback claims on $292bn in home loans that it sold to Fannie Mae.
And in mid-December a group of eight investors, including Freddie Mac, Pimco Investment Management, Blackrock Financial Management and the Federal Reserve Bank of New York extended talks with Bank of America over the group's demands the bank buy back soured mortgages sold to them.
The investors argue that Countrywide's practice of modifying loans found to have faulty paperwork or those written outside of normal underwriting standards breached signed agreements with the investors.
By continuing to service bad loans rather than speeding up foreclosures, the group claims, Countrywide ran up servicing fees, enriching itself at the expense of investors.
Bank of America, however, has described the loan modifications as the "proper response to an unprecedented housing crisis and in furtherance of the stated policy of the federal government".
The deals with Freddie Mac and Fannie Mae don't cover loan servicing obligations, other contractual obligations or loans contained in private label securitisations. But the agreements are a sign the bank is working quickly to deal with buyback claims.
"These actions resolve substantial legacy issues in the best interest of our shareholders," Bank of America CEO Brian Moynihan said. Fannie Mae said the Bank of America deal was a "fair and responsible resolution" of the outstanding claims. (Bloomberg)