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$9.3B BofA Settlement

Mar 27 2014, 2:48am CDT | by

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$9.3B BofA Settlement

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$9.3B BofA Settlement

It’s been an expensive road to recovery for Bank of America as the company settles yet another multi-billion mortgage case.

The nation’s second largest bank agreed to pay a whopping $9.3 billion to settle mortgage-backed securities allegations brought by the Federal Housing Finance Agency.

The FHFA, which represents Fannie Mae and Freddie Mac, had alleged violations of federal and state securities laws against BofA, Countrywide and Merrill Lynch in connection with private label, residential mortgage based securities (RMBS) purchased by Fannie and Freddie between 2005 and 2007.

Under the terms of the deal BofA will pay cash totaling $6.3 billion to Fannie and Freddie, and also repurchase soured RMBS worth about $3.2 billion.

It’s a big chunk of money for BofA. The settlement will hurt the bank’s first quarter 2014 income by $3.7 billion (pretax), or $.21 per share. But the settlement  is a good one for the bank in the long run because it clears the bank of pending FHFA lawsuits.

The FHFA’s pending lawsuits will be dismissed with prejudice and Bank of America and its affiliates will be released from all securities law and fraud claims, as well as certain other claims related to the private-label RMBS in dispute, according to BofA.

In a statement, BofA said, “The FHFA settlement resolves one of the most significant remaining pieces of RMBS securities litigation facing the company. With this settlement, Bank of America has now resolved approximately 88 percent of the unpaid principal balance of all RMBS as to which RMBS securities litigation has been filed or threatened for all Bank of America-related entities.”

FHFA Director Melvin L. Watt said, “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 of these cases. This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit. Many potential homeowners will benefit from increasing certainty in the marketplace and that is very much the direction we should be taking.”

The settlement news comes the same afternoon BofA passed the Fed’s CCAR exam. The results of the stress test allow BofA to increase its quarterly common stock dividend to $.05 per share, and repurchase $4 billion in common stock.

Five of the 30 banks subject to CCAR failed including Citigroup. The Fed said Citigroup’s deficiencies include its ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations, and its ability to develop scenarios for its internal stress testing that adequately reflect and stress its full range of business activities and exposures.


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