Things are not always as they appear, especially when it comes to financial settlements on Wall Street. According to a recent article in CNN Money, when you examine the fine print of the $9.5 billion settlement Bank of America Corp (NYSE:BAC) made with the FHFA, it turns out that the admitted-cheater mega-bank is only really paying a net settlement of $4.9 billion.

Bank Of America BAC

Sources also say that Bank of America Corp (NYSE:BAC) is currently negotiating a settlement with the Department of Justice to resolve the government’s remaining financial crisis-related investigations against the bank. Analysts say that payment could top $13 billion.

CNN Money Senior Editor Steven Gandel decided to dig in to the numbers of the recent settlement between the Federal Housing Finance Authority and Bank of America Corp (NYSE:BAC), and discovered the devil really is in the details.

Settlement included mortgage bond buy back

Gandel points out that although Bank of America supposedly paid a $9.5 billion settlement to FHFA, but more than a third of that amount, $3.2 billion, went to repurchase problem mortgage bonds that had been sold by BofA (or acquited subsidiary) to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

Although Bank of America Corp (NYSE:BAC) is the fifth bank to settle mortgage claims with FHFA, it’s the first bank to buy back bonds that it sold to Fannie and Freddie. Other banks have only repurchased loans that were defective.

Notably, FHFA also didn’t force Bank of america to repay Fannie Mae and Freddie Mac for the defective bonds and take the losses, as it did with other banks that bought back loans. Bank of America Corp (NYSE:BAC) instead just paid the current market price for the bonds, which was 20% of their original value on average.

Bank of America profits from repurchased bonds

However, the prices of many mortgage bonds have been increasing steadily over the last few  months. According to a recent analysis prepared by a mortgage bond portfolio manager for Fortune, the bonds that Bank of America Corp (NYSE:BAC) bought back are now worth around $3,338,229,282.41. That means BofA has made at east $138 million on the bonds in just two months.

Furthermore, he bonds have a remaining value of $5.2 billion. Assuming historical repayment rates on similar instruments, this means BofA stands to make $1.4 billion on the bonds it got from Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

According to Gandel, when you calculate all the details in the supposed $9.5 billion FHFA settlement, BofA’s net payments to FHFA will only be around $4.9 billion.

These figures make it clear BofA got a good deal. Gandel explains, “FHFA’s suit against BofA alleged that the bank, along with Countrywide and Merrill Lynch, made misrepresentations on $57.5 billion in bonds that were sold to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). BofA’s settlement could end up costing the bank just 8.5% of that amount.”