Bank of America announces $8.5 billion settlement agreement over mortgage sales

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Bank of America announces $8.5 billion settlement agreement over mortgage sales

2011-06-29 23:22:39 GMT+7 (ICT)

CHARLOTTE, NORTH CAROLINA (BNO NEWS) -- Bank of America Corporation on Wednesday announced that it reached an $8.5 billion settlement agreement in relation to the sale of poor quality mortgage bonds.

The settlement will resolve nearly all of the legacy Countrywide-issued first-lien residential mortgage-backed securitization (RMBS) repurchase exposure, representing 530 trusts with original principal balance of $424 billion.

However, the settlement agreement with The Bank of New York Mellon (BNY Mellon) and the trustee for the RMBS trusts is subject to final court approval and certain other conditions.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," said Bank of America Chief Executive Officer Brian Moynihan. "We will continue to clean up the mortgage issues largely stemming from our purchase of Countrywide."

Under the terms of the agreement, $8.5 billion will be paid to the covered trusts while Bank of America also intends to record an additional $5.5 billion provision to its representations and warranties liability for both Government-Sponsored Enterprises (GSE) and non-GSE exposures in the second quarter of 2011.

Furthermore, Bank of America expects to register a los of $0.88 to $0.93 per share in the second quarter of 2011 due to the settlement and additional mortgage-related costs which included impairment charge of $2.6 billion.

Over the last six months, Bank of America and Countrywide have announced three agreements aimed at reducing exposure to legacy Countrywide mortgage issues. Wednesday's agreement covers nearly all of the first-lien private-label RMBS repurchase exposure.

In addition, the settlement covered 525 legacy Countrywide first-lien RMBS trusts and five legacy Countrywide second-lien RMBS trusts with mortgage loans principally originated between 2004 and 2008.

BNY Mellon acted as trustee or indenture trustee for such trusts which had an original principal balance of around $424 billion and total current unpaid principal balance of approximately $221 billion.

In January, the financial institution announced agreements with two of its largest counterparties, Fannie Mae and Freddie Mac that resolved the existing pipeline of repurchase and make-whole claims in regards to alleged breaches of selling representations and warranties related to loans sold by Countrywide.

In April, the company and Countrywide signed an agreement with Assured Guaranty to resolve the monoline insurer's outstanding and potential repurchase claims related to alleged representations and warranties breaches on 29 RMBS trusts.

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