Bank of America Corporation (BAC) has announced a mortgage settlement deal with Freddie Mac (FMCC). The settlement resolves all outstanding and probable representations and warranties claims on about 716,000 residential mortgage loans sold to Freddie Mac from 2000 to 2009.
As of Sep 30, 2013, Freddie Mac had $1.4 billion as repurchase demand from BofA. This was nearly 42% of Freddie Mac’s total repurchase demand.
BofA will be paying a total sum of $391 million, with $13 million adjustment for repurchases already made. Notably, this will compensate Freddie Mac for prior losses as well as possible losses in the future related to denials, rescissions and terminations of mortgage insurance. However, the settlement will not cover loan servicing obligations, loans contained in private label securitizations or securities and disclosure claims.
Moreover, BofA stated that it is fully reserved to meet the payment obligation.
The deal is expected to put an end to BofA’s representations and warranties claims related to the loans sold to Freddie Mac and Fannie Mae (FNMA) preceding the financial crisis. Notably, since 2010, BofA has paid an aggregate of nearly $15 billion to settle similar claims from both these Government Sponsored Enterprises (GSEs).
These GSEs can compel banks to buy back mortgages that do not abide by the prescribed guidelines. Since 2009, both have compelled several lenders to repurchase bad loans worth billions of dollars. In the past few months, Freddie Mac reached settlements with Wells Fargo & Company, Citigroup Inc., JPMorgan Chase & Co. (JPM) and SunTrust Banks, Inc. to resolve similar issues.
However, this is not the end of all mortgage-related issues for BofA. In 2011, Freddie Mac and Fannie Mae had filed a case against BofA, Countrywide Financial Inc. and Merrill Lynch & Co. Notably, BofA had acquired Countrywide and Merrill Lynch in 2008. The litigation concerns the sale of risky mortgage-backed securities worth $58 billion.
Currently, BofA carries a Zacks Rank #3 (Hold).