Business
BOA To Pay $2.8bn Claims
Bank of America Corporation said it agreed to pay Fannie Mae and Freddie Mac, $2.8bn, to settle claims that it sold the mortgage finance companies bad home loans.
Our source reported on Monday, that the Bank of America shares climbed 4.5 per cent in early trading.
Analysts said many investors had worried the bank would have to buy back billions of dollars of home loans it sold to investors at the height of the housing boom.
“This takes away a nice headline risk” for the Bank of America, Mr. Alan Villalon, a senior bank analyst at Chicago-based Nuveen Investments, said.
The agreement with Fannie and Freddie resolves the bulk of the bank‘s exposure to those government-sponsored enterprises, but it still faces potential liabilities from mortgages it sold to private investors.
Mortgage investors say the home loans should never have been sold to them in the first place, because they did not meet investors‘underwriting requirements.
Bank of America said it made a $1.28bn cash payment to Freddie Mac, as part of an agreement to end all claims through 2008 related to mortgages sold by Countrywide, a mortgage company bought by the bank in 2008.
The bank paid Fannie Mae $1.34bn in cash and applied certain credits to reach an agreed $1.52bn settlement on 12,045 countrywide loans.
Bank of America said it would reserve $3bn in the fourth quarter, related to the Fannie and Freddie claims and expects to record a goodwill impairment charge of $2bn in the quarter in its home loans and insurance business unit.
BOA Chief Financial Officer, Mr. Charles Noski, said in a conference call with analysts that the bank does not expect to add to the reserve for additional repurchase requests from Fannie or Freddie in the future, though the agreement only covers loans originated by Countrywide.
The bank estimates it will have $2.7bn in outstanding repurchase requests from Fannie and Freddie not covered by the settlement. Noski said this includes $832m of requests due to incomplete documentation that can be resolved without large losses to the bank.