Bank of America agrees to pay $9.3 billion in FHFA settlement

Bank of America on Wednesday agreed to pay USD 9.3 billion to resolve a dispute over mortgage securities with the Federal Housing Finance Agency, the regulator that oversees mortgage-finance giants Fannie Mae and Freddie Mac.

The settlement includes USD 6.3 billion in cash and USD 3.2 billion in securities that Bank of America will purchase at market value from the two housing finance entities

The settlement includes USD 6.3 billion in cash and USD 3.2 billion in securities that Bank of America will purchase at market value from the two housing finance entities

The settlement includes USD 6.3 billion in cash and USD 3.2 billion in securities that Bank of America will purchase at market value from the two housing finance entities. The deal will put an end to litigation over the bad mortgages issued that preceded the financial crisis.

In 2011 FHFA sued nearly 18 financial institutions over their sales of mortgage securities to Fannie and Freddie. The agency asserted many banks falsely represented the mortgage loans behind the securities. These soured after the housing bubble burst and lost billions in value. Other FHFA settlements included agreements with JP Morgan Chase and Co. ($5.1 billion), Deutsche Bank ($1.9 billion), Morgan Stanley ($1.25 billion), Union Bank of Switzerland ($885 million), Credit Suisse Holdings ($885 million) and Wells Fargo and Co., which settled for $335 million before FHFA had a chance to sue.

While the Bank of America did not admit liability or wrongdoing in the settlement, it stated that the settlement with the FHFA takes care of claims in the litigation surrounding securities backed by housing-boom mortgages.

FHFA Director Melvin Watt said in a statement that the settlement represents a significant step in helping restore stability in the broader mortgage market and moving to reinstate the role of private agencies in providing mortgage credit.

The settlement will hurt the Bank of America’s first-quarter 2014 earnings, which are set to be released April 16. The bank said the settlement was expected to decrease first-quarter income by about 21 cents a share, or $3.7 billion (pre-tax).  However, in the long run the settlement is a good one for the bank because it clears the bank of pending FHFA lawsuits.

In addition, the Bank of America and its former chief executive, Kenneth Lewis also settled a lawsuit by New York’s attorney general that accused it misled investors about mounting losses at Merrill Lynch & Co, which the bank agreed to purchase at the height of the financial crisis. Merrill Lynch was a major generator of bonds backed by high-risk mortgages.

The settlement requires the bank pay $15 million and adopt certain corporate governance reforms, while Lewis, who resigned in 2009 agreed to pay $10 million. He is prohibited from leading any public company for three years.

However, the Bank of America’s mortgage troubles are not yet over. It still faces a lawsuit from the U.S. Justice Department and several other probes by the DOJ and states over mortgage-backed securities it sold during the housing boom which may lead to more penalties and fines. On Wednesday, the bank said it will continue to cooperate and that it is currently in preliminary discussions to resolve the matters.

 

Avatar
Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

Recent Posts

Elior acquires Nestor, the single meal food delivery startup

Elior acquires Nestor, the single meal food delivery startup

Elior, the corporate catering company, has acquired the French startup Nestor for an undisclosed amount. Nestor, a Paris, France-based food delivery service, started in 2015 with a
3 days ago
Axa gears to buy office space worth €800m in European cities

Axa gears to buy office space worth €800m in European cities

Axa Investment Managers, the French fund house, is not too worried about predictions that the post-pandemic world will see more people working from home and office real estates shr
3 days ago
ShareChat raises $502 million at $2 billion valuation

ShareChat raises $502 million at $2 billion valuation

ShareChat, the Indian owner of short video app Moj, has raised $502 million in the series E round of funding, pushing its value at $2.1 billion in the market. The five-year-old com
4 days ago
Small business groups form coalition to lobby for strong antitrust laws

Small business groups form coalition to lobby for strong antitrust laws

Small merchant groups are coming together to rally for strong antitrust laws to prevent big conglomerates like Amazon from swallowing up the smaller traders and businesses. Trade g
4 days ago
Vitol’s profit soars during 2020 oil crisis

Vitol’s profit soars during 2020 oil crisis

The world’s largest independent oil trader Vitol made record profits in 2020 as the fluctuations in the global energy markets resulted in a windfall. Vitol suffered an $85 billio
5 days ago
Seadrill proposes debt write off of $4.8 billion

Seadrill proposes debt write off of $4.8 billion

Seadrill Ltd., a deepwater drilling contracting company, owned by billionaire John Fredriksen, said it is ready to write off a debt of over $4.8 billion, giving lenders a 99 perce
6 days ago