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Bank of America to Pay $9.3 Billion to Settle Mortgage Bond Claims

reuters.com | March 27, 2014

By Margaret Chadbourn and Aruna Viswanatha

(Reuters) - Bank of America agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping the bank to end one of the largest legal headaches it still faced from the financial crisis.

The settlement, announced on Wednesday, includes $6.3 billion in cash and $3.2 billion in securities that Bank of America will purchase from the two housing finance entities.

The second-largest U.S. bank by assets said it had now resolved around 88 percent of its total exposure to securities at issue in the mortgage bond litigation it has faced.

Bank of America's first-quarter profits could take a substantial hit from the deal. The bank said the settlement is expected to reduce first-quarter income by about 21 cents per share, or three-quarters of what analysts surveyed by Thomson Reuters I/B/E/S forecasted the bank to earn before the settlement was announced.

Also on Wednesday the bank agreed to pay $15 million to resolve a long-running lawsuit from the New York Attorney General over its 2009 acquisition of Merrill Lynch & Co.

It still faces a lawsuit from the U.S. Justice Department and several other probes by the DOJ and states over mortgage-backed securities it sold during the housing boom. On Wednesday the bank said it has had "preliminary discussions" to resolve the matters.

"REASONABLE AND PRUDENT"

The new settlement with Fannie Mae and Freddie Mac resolves lawsuits filed against Bank of America, Merrill Lynch, and Countrywide, the subprime mortgage lender it bought at the height of the financial crisis.

The regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency, had accused the bank of misrepresenting the quality of loans underlying residential mortgage-backed securities purchased by the two mortgage finance companies between 2005 and 2007.

The two taxpayer-owned firms have operated under conservatorship since 2008, when they were seized by regulators after losses on subprime loans pushed them toward insolvency.

It was the 10th settlement that the FHFA has reached in litigation that began in 2011 when it filed 18 lawsuits over about $200 billion in mortgage-backed securities, an investment product at the center of the recent global financial crisis.

Many of the settlements were reached after a series of court rulings that went against the banks.

"FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement," FHFA Director Mel Watt said in a statement.

So far, the FHFA has recovered more than $10 billion from banks by asserting similar claims over mortgage securities. Seven other banks still need to resolve similar lawsuits.

Merrill Lynch would have been the first of the banks with legal disputes still pending to face trial, with a date of June 2.

U.S. District Judge Denise Cote has scheduled September trial dates for Goldman Sachs Group Inc and HSBC Holdings plc.

 

Back to March 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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