--Bank of America agrees to pay Fannie $3.6 billion and buy back
$6.8 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
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 $10.4
billion to Fannie Mae (FNMA) in cash and mortgage repurchases
covering nearly a decade's worth of home loans.
The deal includes a $3.6 billion payment and repurchase of about
30,000 home loans for $6.8 billion. The bank said it would take a
$2.7 billion pre-tax 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 buy-backs 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 up 0.5% at $12.16 just after trading
opened 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 2 million home loans totaling $306 billion in
unpaid principal balance. The acquirers are Walter Investment
Management Corp. and Nationstar Mortgage Holdings.
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."
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.
In addition to the mortgage-related items, Bank of America
expects its fourth-quarter financial results to be negatively
impact pretax earnings about $2.5 billion for the independent
foreclosure reviews, litigation, and other mortgage-related
matters.
Results for the fourth quarter of are also 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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires