Bank of America announced a $10.3 billion settlement with Fannie Mae Jan. 7 that resolves legacy mortgage repurchase claims, HousingWire reported. The bank agreed to pay Fannie $3.6 billion in cash and to repurchase $6.75 billion in residential loans it had sold to the government-sponsored enterprise.
The settlement, which applies to loans with a $1.4 trillion unpaid principal balance and resolves outstanding compensatory fees, will allow the lender to move away from legacy mortgage issues that had expanded exponentially following its acquisition of Countrywide Financial Corp.
According to HousingWire, the bank will tap both its current reserves and a $2.5 billion representations and warranties provision to pay for the settlement.
The total settlement encompasses repurchase and originations claims related to loans originated and sold to Fannie from Jan. 1, 2000 through Dec. 31, 2008. A significant number of the loans connect back to Countrywide.
Debates on the quality and performance of the mortgages became tense between the two financial institutions, HousingWire reported. In February 2012, business in this area was halted between the two entities.
The agreement also calls for Bank of America to sell the mortgage servicing rights to 2 million loans, which have an overall unpaid principal balance of $306 billion. The lender already has signed a definitive agreement with two counterparties (Nationstar Mortgage Holdings and Green Tree Servicing) for those rights, HousingWire reported.
The MSR sale includes 232,000 loans that already are 60-days late. The transfer of the MSRs will take place in stages throughout the year.
“Together, these actions described above are expected to reduce Bank of America’s pretax income by approximately $2.7 billion in the fourth quarter of 2012,” the bank said in a statement provided to HousingWire.
At the same time, the deal resolves putback claims, ceases major problems tied to mortgage insurance and permits the bank to handle any outstanding exposures connected to its sales of mortgages to the GSE.
The Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac, approved the settlement and accepted transfer of the mortgage servicing rights to specialty servicers.
“Resolving these issues at this time is in the best interest of taxpayers and reduces uncertainty in the nation’s mortgage finance market,” said Edward J. DeMarco, FHFA acting director, HousingWire reported. “This is a major step forward in resolving issues from the past and providing greater certainty in the marketplace, which remain critical FHFA goals as conservator. I am pleased with the resolution achieved and thank everyone involved for their efforts.”
“A favorable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers,” Bradley Lerman, executive vice president and general counsel of Fannie Mae, said in a news release. “Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of the origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests.”
According to the GSE’s news release, under the agreement, Bank of America will continue to assume liability for repurchase commitments stemming from specified excluded defects (e.g. Fannie Mae Charter Act violations) and some unresolved servicing and indemnification obligations. The bank also will also be responsible for select payment and additional obligations tied to mortgage insurance.