--Bank of America agrees to pay Fannie $3.55 billion and buy
back $6.75 billion in mortgages
--Deal reduces bank's exposure for outstanding mortgage buyback
claims by nearly half
--Bank of America will also sell more than $300 billion in
mortgage-servicing rights
(Adds additional detail on mortgage servicing deals, comment
from Fannie, updates stock move)
By Christian Berthelsen and Saabira Chaudhuri
Bank of America Corp. (BAC) announced a deal Monday to resolve
its biggest hangover stemming from the acquisition of Countrywide
Financial Corp. and the era of easy mortgage credit, paying $10.3
billion to Fannie Mae (FNMA) in cash and mortgage repurchases
covering nearly a decade's worth of home loans.
The deal includes a $3.55 billion payment and repurchase of
about 30,000 home loans for $6.75 billion. The bank said it would
take a $2.7 billion pretax charge in the fourth-quarter related to
the deal, and $2.5 billion in other charges on other
mortgage-related matters. Combined with tax benefits and changes in
the valuation of its debt, the bank said it expected fourth-quarter
earnings to be "modestly positive." Analysts expected the bank to
report pretax income of $3.5 billion and net income of $2.3
billion.
Still, the deal resolves the biggest piece of outstanding
litigation facing the bank, having settled class-action lawsuits
over its 2008 acquisition of Merrill Lynch for $2.4 billion in the
third quarter of 2012. The agreement with Fannie Mae covers $11.2
billion in demands from Fannie--nearly half of all such claims it
faced--that Bank of America repurchase soured mortgages that the
agency believed did not meet proper underwriting standards, issued
from the beginning of 2000 to the end of 2008.
The deal also reduced the bank's range of possible loss beyond
reserves for mortgage buybacks to $4 billion from $6 billion. The
loans amounted to $1.4 trillion in original unpaid principal
balance and $300 billion in outstanding principal balance.
Bank of America shares were about flat at $12.10 in midmorning
trading in New York.
It was unclear how the settlement of Fannie's mortgage claims
would affect a lawsuit filed by the U.S. Attorney's Office in
Manhattan against Bank of America last year over the same issues.
The lawsuit claimed Bank of America, through its acquisition of
Countrywide, misled Fannie and Freddie Mac (FMCC) about the quality
of its home loans, and sought at least $1 billion related to the
taxpayer cost of the bailout for the two federal mortgage
underwriters.
Meanwhile, the bank also announced it would sell
mortgage-servicing rights on two million home loans totaling $306
billion in unpaid principal balance. The acquirers are Walter
Investment Management Corp. and Nationstar Mortgage Holdings.
The deals reduce Bank of America's mortgage-servicing portfolio,
which stood at $1.5 trillion in unpaid principal balance and 7.9
million first-lien loans at the end of the third quarter, by 20% to
25%. Bank of America has sharply curtailed its home lending
activities, exiting the business of funding third-party loans in
favor of lending to customers it already has a relationship with.
It has also stopped originating the sub-prime loans that were
Countrywide's specialty, and continues to sell the legacy inventory
from that business.
Bank of America noted that the actions allow it to address
substantially all of its remaining exposure to repurchase
obligations for residential mortgage loans sold directly to Fannie
Mae.
"As we enter 2013, we sharpen our focus on serving our three
customer groups and helping to move the economy forward," Bank of
America Chief Executive Brian Moynihan said. "Together, these
agreements are a significant step in resolving our remaining legacy
mortgage issues, further streamlining and simplifying the company
and reducing expenses over time."
In a prepared statement, Fannie Mae general counsel Bradley
Lerman said the resolution was "in the best interest of
taxpayers."
The transfers of servicing rights are scheduled to occur in
stages over the course of 2013.
Nationstar Mortgage Holdings Inc. (NSM) announced it has agreed
to buy about $215 billion in residential mortgage servicing rights
from Bank of America. Separately, Walter Investment Management
Corp. (WAC) said it has agreed to buy about $93 billion of Fannie
Mae backed residential servicing assets from Bank of America for
$519 million.
Results for the fourth quarter are expected to include about
$700 million of pretax negative debit valuation adjustments and
fair-value option adjustments.
Bank of America added that its results are also expected to be
positively impacted by a benefit of $1.3 billion, primarily related
to an income-tax benefit from the recognition of foreign tax
credits made available from the restructuring of certain non-U.S.
subsidiaries.
Bank of America stock has risen 96% in the past 12 months.
Shares of Nationstar rose 17% to $38.83 in opening trading, while
those of Walter rose 9% to $48.05.
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com
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