BofA to Pay $6.3 Billion to Fannie, Freddie Over RMBS Failures

Bank of America also reaches deal with New York attorney general over Merrill Lynch losses

Bank of America sign. (Photo: AP) Bank of America sign. (Photo: AP)

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Bank of America has settled litigation with the Federal Housing Finance Agency alleging it misled the agency about residential mortgage-backed securities (RMBS), the bank announced Wednesday. The bank has also settled with the New York attorney general regarding a failure to disclose losses at Merrill Lynch prior to acquiring the firm.

The bank will pay $6.3 billion to Fannie Mae and Freddie Mac and $15 million to settle the attorney general's claims against it.

The settlement with the FHFA as conservator of Fannie Mae and Freddie Mac resolves all of FHFA’s residential mortgage-backed securities (RMBS) litigation with Bank of America, as well as other legacy contract claims.

The FHFA settlement resolves four lawsuits FHFA filed against Bank of America, Countrywide and Merrill Lynch beginning in September 2011, alleging they falsely represented that the underlying mortgage loans complied with certain standards. Approximately $57.5 billion (in purchase cost) of private-label RMBS purchased by Fannie Mae and Freddie Mac are covered by the settlement.

According to the Bank of America press release, under terms of the settlement, Bank of America will make cash payments totaling approximately $6.3 billion to Fannie Mae and Freddie Mac. In addition, Bank of America will purchase certain RMBS at fair market value (approximately $3.2 billion).

In return, 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.

BofA has also disclosed that it is subject to inquiries and investigations, and may be subject to penalties and fines by the U.S. Department of Justice (DOJ), state attorneys general and other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force (collectively, the governmental authorities), and is a party to civil litigation proceedings brought by the DOJ and certain other governmental authorities regarding the company’s RMBS and other mortgage-related matters.

BofA said in the statement that it “continues to cooperate with and has had preliminary discussions about a potential resolution of these matters with certain governmental authorities.”

The bank is scheduled to report first-quarter 2014 results on April 16.

The FHFA settlement is expected to reduce first-quarter 2014 income by approximately $3.7 billion (before taxes), or $0.21 per common share (after taxes). The company expects its Basel 3 common equity tier 1 capital ratio for the first quarter ending March 31, 2014, will be in line with the fourth quarter ended Dece. 31, 2013, based on the impact of the FHFA settlement and other factors, including interest rates, that are known as of Wednesday.

BofA also announced that it settled a 2010 lawsuit brought by the New York attorney general against Bank of America and certain former executives, alleging a failure to disclose losses at Merrill Lynch prior to buying it.

The company has agreed to pay $15 million to settle the NYAG’s claims against it, reflecting the NYAG’s cost of investigation and litigation, and to adopt certain corporate governance changes.

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Check out BofA Should Pay $2.1 Billion in Fraud Case, U.S. Says on ThinkAdvisor.

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