Bank of America settles with Fannie Mae and Freddie Mac for $9.3 billion

The settlement represents a major step forward in BOA’s effort to resolve all litigation from the 2008 financial crisis

It’s Bank of America’s turn to settle with Fannie Mae and Freddie Mac over faulty mortgage bonds stemming from the financial crisis, and the price tag is a lofty one: $9.3 billion.

The bank announced the settlement on March 26. It will include a $6.3 billion cash payment to the home-loan financiers, while the rest will be in securities purchased from the two agencies.

For Bank of America (BoA), this settlement represents a major step forward in its effort to resolve all litigation from the 2008 financial crisis. According to Reuters, the company estimates that it has resolved around 88 percent of its total exposure to securities at issue in the litigation it has faced. This settlement follows an $848 million fine to BoA-subsidiary Countrywide for Fannie Mae and Freddie Mac-related damages, as well as nearly $6 billion to the Federal Housing Finance Agency.

However, this settlement could see the bank take a hit in this quarter’s earnings. BoA announced that with the settlement, it was expected to reduce first-quarter profits by 21 cents per share. Thomson Reuters I/B/E/S analysts estimate that mark to be roughly three-quarters of what the bank was expected to earn pre-settlement.

For Fannie Mae and Freddie Mac, this settlement represents yet another deal with a major U.S. bank in the quest to recover damages from substantial losses taken during the financial crisis. In January 2014, Wells Fargo paid Fannie Mae $591 million for its role within the financial crisis. In addition, through the terms of JPMorgan’s deal with the federal government, the financial institution agreed to purchase securities from the two agencies.

The $6 billion settlement wasn’t BoA’s only deal of the day, however. The bank and former chief executive Kenneth Lewis also settled a lawsuit that claimed the parties misled investors about losses at Merrill Lynch. BoA agreed to pay $15 million and institute internal controls, while Lewis agreed to pay $10 million and was barred from serving as director of a public company for three years. Lewis resigned from BoA in 2009.

 

For more on the lingering effects of the financial crisis, check out these InsideCounsel articles:

Credit Suisse reaches settlement with FHFA

California governor sued over homeowner relief fund reallocation

Federal Reserve Bank of New York president criticizes Wall Street culture

JPMorgan settles for $400 million with Syncora over mortgage-backed securities

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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