The first week of 2013 has not been a happy new year for some of the nation’s largest banks, particularly Bank of America.
On Monday, Bank of America agreed to pay $10 billion to Fannie Mae to clear up claims made on troubled mortgages, mainly associated with Countrywide Financial, the lending group that Bank of America purchased in 2008.
Under terms of the agreement, Bank of America will pay Fannie Mae $3.6 billion and will spend another $6.75 billion to buy back mortgages from Fannie, the government-sponsored lending enterprise. Fannie Mae contends that Countrywide Financial misrepresented the quality of home loans it sold at the height of the real estate bubble.
In a separate, but related agreement, Bank of America was one of 10 mortgage servicers that will pay a combined $8.5 billion to resolve claims of foreclosure abuse.
Bank of America, Metlife Inc., Citibank, JPMorgan Chase, Aurora Bank FSB, US Bancorp, Wells Fargo & Co., PNC Financial Services, Sovereign Bank and Sun Trust Banks Inc. will pay $3.3 billion to homeowners who went through foreclosure in 2009-2010, and another $5.2 billion to borrowers for loan modifications and reductions of principal balances.
Though the amount each bank was responsible for what not announced, most insiders believe that Bank of America will end up paying the largest share.
Bank of America Selling Some Loans
Bank of America also agreed to sell servicing rights on $306 billion of loans. Nationstar Mortgage Holdings will pay $1.3 billion for the rights to $215 billion of loans. Walter Investment took over servicing rights on $93 billion in mortgages, paying $519 million for the privilege.
“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Brian Moynihan, chief executive for Bank of America, said in a statement.
The foreclosure abuse case involved about 495,000 people who made claims against the 10 lending institutions. The Office of the Comptroller of Currency (OCC) said another 159,000 foreclosures were chosen in a sampling process after complaints that the banks improperly seized homes during the sub-prime mortgage crisis.
Headed in Right Direction
“While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner,” Thomas Curry, comptroller of the currency, said in a statement.
The banks are being ordered to deliver lump-sum payments of as much as $125,000 plus lost equity to affected borrowers. Some homeowners have been waiting two years for the compensation.
Bank of America said it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion because of costs tied to foreclosure reviews and litigation. The firm also expects to record a $700 million charge, an accounting move known as a debt-valuation adjustment, related to an improvement in the prices of its bonds.