Bank of America Corp (BAC) Settles Mortgage Bond Dispute For $9.3 B

Bank of America

Bank of America Corp (NYSE:BAC) will pay $9.3 billion in settlement of the claims over selling Fannie Mae and Freddie Mac faulty mortgage bonds. The settlement will put an end to one of the biggest cases faced by the U.S. bank since the financial crisis.

Settlement could lower the income

Over the settlement, FHFA Director Mel Watt said, “FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement.”

FHFA has received more than $10 billion from banks over similar settlements concerning mortgage securities, and still seven more banks are in line to resolve the similar dispute.

In a settlement announced on Wednesday, Bank will have to pay $6.3 billion in cash and the balance in the securities that the Bank of America will buy form the two housing finance companies. Including this settlement, the U.S. bank has now closed almost 88% of its total exposure to the litigation over the issue of mortgage bonds.

It is expected that the settlement might impact the profits in the first quarter. According to the second largest U.S. bank by assets, the deal could lower the income by 21 cents a share, or three-quarters from the consensus estimate.

Another probe settled

On Wednesday, Bank of America Corp (NYSE:BAC) and its former chief executive, Kenneth Lewis settled another lawsuit with the New York’s attorney general. In this case, the bank was alleged of misleading investors over the rising losses at Merrill Lynch & Co. Bank of America acquired Merrill Lynch during the financial crisis.

Lewis, who resigned in 2009, agreed to contribute $10 million, and not to become an officer or director of a public company for three years. Bank on its part agreed to contribute $15 million, and follow corporate reforms. Both the contributed amount will be utilized to pay the costs of New York’s investigation. It must be noted that both Lewis and Bank of America have not accepted any of charges leveled against them.

Numerous cases from the U.S. Justice Department, DOJ and states over the mortgage-backed securities sold during the housing boom, are still pending against Bank of America Corp (NYSE:BAC). On Wednesday, the bank revealed that it is in “preliminary discussions” to close the probes.