NEW YORK -- Bank of America reached an $11.6 billion settlement with government mortgage agency Fannie Mae to settle claims resulting from mortgage-backed investments that soured during the housing crash, bringing it a step closer to clearing up its legacy of bad home loans.Under the deal announced Monday, Bank of America will pay $3.6 billion in cash to Fannie Mae and buy back $6.75 billion in loans that the bank and its Countrywide Financial unit sold to the agency from Jan. 1, 2000 through Dec. 31, 2008. That includes about 30,000 loans. The bank is also paying $1.3 billion to the agency for failing to deal with foreclosures fast enough.Also Monday, a separate settlement was announced between federal regulators and ten major banks and mortgage companies, including Bank of America, over wrongful foreclosure practices. That $8.5 billion settlement covers up to 3.8 million people who were in foreclosure in 2009 and 2010. Of those, about 400,000 may be entitled to payments, advocates estimate.For Bank of America, its own settlement with Fannie Mae over the mortgage investments represents a "a significant step" in resolving the bank's remaining mortgage problems, Bank of America CEO Brian Moynihan said in a statement. Moynihan's predecessor, Ken Lewis, bought Countrywide, a troubled mortgage-lending giant, in July 2008 just as the financial crisis was taking hold.
The settlement represents "another step closer to normal," for Bank of America, Wells Fargo analyst Matt Burnell wrote in a note to clients. Burnell said the deal was good for the bank because it resolved a dispute with a government agency and will likely reduce the provisions it has to set aside to cover claims from investors over faulty mortgages that were sold with incorrect data on home values or income.Bank of America's acquisition of Countrywide was initially praised by lawmakers because the lender was seen as stepping in to support the mortgage industry. However, instead of boosting Bank of America's mortgage business, the purchase has drawn a drumbeat of regulatory fines, lawsuits and losses.
Fannie Mae and Freddie Mac buy mortgages from banks and package them together as bonds that they sell to investors. During the housing boom, banks sold loans to the two agencies that should never have been issued, because the banks failed to carry out the necessary diligence before making them. For example, banks sometimes failed to adequately check whether customers had stated their income correctly.The government agencies, which were effectively nationalized in 2008 when they nearly collapsed under the weight of their mortgage losses, have been demanding that banks buy back some of the mortgage-backed investments.In September, Bank of America also agreed to pay $2.43 billion to settle a class-action lawsuit related to its takeover of Merrill Lynch, another of Lewis's acquisitions during the financial crisis. That lawsuit was filed on behalf of investors who bought or held Bank of America stock when the company announced its plans to buy Merrill Lynch in a $20 billion deal as the banking industry and federal regulators struggled to contain fallout from the financial crisis in the fall of 2008.The Charlotte, North Carolina-based bank said it would pay for the Fannie Mae settlement in part from existing reserves, though it would record a $2.7 billion hit to its fourth quarter earnings for 2012 from the settlement and the loan servicing fees, as well as taking a charge of $2.5 billion for the settlement over wrongful foreclosure practices.Despite the charges, Bank of America still expects its earnings for the period to be "modestly positive." Bank of America is scheduled to report earnings Jan. 17.Bank of America fell 8 cents to $12.01 Monday, after opening slightly higher. The stock more than doubled in 2012, making it the best performer in the 30-member Dow Jones industrial average. It's up 3.6 percent this year."Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests," Bradley Lerman, Fannie Mae executive vice president and general counsel, said in a statement.