Bank of America Corp to Pay Fannie Mae $10 Billion to Settle Claims (BAC)
Shares of Bank of America Corp. (NYSE: BAC) climbed 1 percent in premarket trading on Monday after the bank said that it will pay $3.6 million to Fannie Mae in order to settle claims linked to residential mortgage loans that went sour during the housing market crash. These loans were mainly issued by its subsidiary, Countrywide Financials during the credit and housing market bubble of mid-2000s, which went bust in 2008. Fannie Mae had alleged that Bank of America kept the agency in dark about the quality of loans during the financial crisis.
As a part of its deal with Fannie Mae, Bank of America will also buyback $6.75 billion of residential mortgage loans sold to the government agency.
Meanwhile, the bank also reached agreements with Nationstar Mortgage Holdings and Walter Investment Management to sell nearly $306 billion of residential mortgage service rights.
This agreement would allow banks to receive fees from mortgage investors in lieu of for collecting home loans payments from creditors.
Bank America, in order to lower its exposure to huge losses arising out of its botched acquisition of Countrywide Financial in 2008, was in talks in recent times to sell collection rights on mortgages estimated at $300 billion. Bank of America had acquired Countrywide Financial Corp in July 2008; just few months before the financial crisis started; and, although Countrywide was considered as a giant in mortgage lending, the agency was also overexposed to risky loans.
The bank said that settlements with Fannie Mae would hit its fiscal fourth quarter pretax income by $2.7 billion.
In a statement released Bank of America’s Chief Executive 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.”
Earlier in 2011, the bank has settled its dispute with Freddie Mac, another government owned mortgage lender.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.
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