Bank of America Announces Settlement with Fannie Mae to Resolve Agency Mortgage Repurchase Claims on Loans Originated and Sold Directly to Fannie Mae Through December 31, 2008
Bank of America today announced agreements with the Federal National
Mortgage Association (Fannie Mae) to resolve outstanding and potential
repurchase and certain other claims relating to the origination, sale
and delivery of substantially all residential mortgage loans originated
and sold directly to Fannie Mae from January 1, 2000 through December
31, 2008 by entities related to Countrywide Financial Corporation
(legacy Countrywide) and Bank of America, National Association (BANA).
In addition, Bank of America announced that it signed definitive
agreements to sell the servicing rights on 2.0 million residential
mortgage loans totaling approximately $306 billion, as measured by the
aggregate unpaid principal balance (as of November 30, 2012).
“As we enter 2013, we sharpen our focus on serving our three customer
groups and helping to move the economy forward,” said Bank of America
Chief Executive Officer Brian Moynihan. “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.”
Fannie Mae agreements
The agreements with Fannie Mae cover loans with an aggregate original
principal balance of approximately $1.4 trillion and an aggregate
outstanding principal balance of approximately $300 billion. Unresolved
claims by Fannie Mae for alleged breaches of selling representations and
warranties with respect to these loans totaled $11.2 billion of unpaid
principal balance at September 30, 2012. These agreements extinguish
substantially all of those unresolved claims, as well as any future
representations and warranties claims associated with loans sold
directly to Fannie Mae from January 1, 2000 to December 31, 2008,
subject to certain exceptions which Bank of America does not expect to
be material.
As part of the agreement to settle representations and warranties
claims, Bank of America will make a cash payment to Fannie Mae of $3.6
billion and also repurchase for $6.75 billion certain residential
mortgage loans sold to Fannie Mae, which Bank of America has valued at
less than the purchase price. These actions are expected to be covered
by existing reserves and an additional $2.5 billion (pretax) in
representations and warranties provision recorded in the fourth quarter
of 2012.
Bank of America also agreed to make a cash payment to Fannie Mae to
settle substantially all of Fannie Mae’s outstanding and future claims
for compensatory fees arising out of past foreclosure delays. This
payment is expected to be covered by existing reserves and an additional
provision of $260 million (pretax) recorded in the fourth quarter of
2012.
Together, these actions described above are expected to reduce Bank of
America’s pretax income by approximately $2.7 billion in the fourth
quarter of 2012.
The Fannie Mae agreement also clarifies the parties' obligations with
respect to mortgage insurance, including by establishing timeframes for
certain payments and other actions, as well as parameters for potential
bulk settlements and by providing for cooperation in future dealings
with mortgage insurers.
Through these actions, Bank of America is addressing substantially all
of its remaining exposure to repurchase obligations for residential
mortgage loans sold directly to Fannie Mae. After giving effect to the
settlement agreements with Fannie Mae announced today, the company
expects to reduce the range of possible loss above existing accruals for
both GSE and non-GSE representations and warranties exposures to up to
$4.0 billion at December 31, 2012, compared to up to $6.0 billion at
September 30, 2012.
Sale of mortgage servicing rights
Bank of America also announced that it signed definitive agreements with
two different counterparties to sell the servicing rights on certain
residential mortgage loans serviced for Fannie Mae, the Federal Home
Loan Mortgage Corporation (Freddie Mac), the Government National
Mortgage Association (Ginnie Mae), and private label securitizations,
with an aggregate unpaid principal balance of approximately $306
billion. Transfers of servicing rights are subject to the approval or
consent of certain third parties.
The sales involve approximately 2.0 million loans currently serviced by
Bank of America, including approximately 232,000 loans classified as 60+
day delinquent first mortgage loans.
Prior to the above transactions, the number of loans classified as 60+
day delinquencies was approximately 775,000 loans as of December 31,
2012, down from 936,000 loans at September 30, 2012. Upon completion of
these servicing transfer transactions, the number of 60+ day delinquent
first mortgage loans serviced by Bank of America is expected to further
decline substantially.
The transfers of servicing rights are scheduled to occur in stages over
the course of 2013. The transactions are expected to have a benefit over
the book value of the mortgage servicing rights of approximately $650
million; about one-half of this amount is expected to be recorded in the
fourth quarter of 2012 related to valuation adjustments to the MSR
asset, with the balance expected to be recorded in future periods at the
time of servicing transfers.
“We are resolving legacy mortgage issues while balancing the needs of
our customers, mortgage investors, our shareholders and communities. The
sale of mortgage servicing rights to highly rated specialty servicing
companies is an important step in that process,” said Ron Sturzenegger,
Legacy Asset Servicing executive for Bank of America. “Bank of America
will work closely with our customers, buyers and the investors who own
the loans to ensure a smooth transition to their new servicer.
Importantly, each of these specialty servicers has committed to adhere
to the same servicing standards as provided under the National Mortgage
Settlement.”
Other items expected to impact fourth-quarter 2012 results
In addition to the mortgage-related items discussed above, Bank of
America expects its fourth-quarter 2012 financial results to be
negatively impacted by approximately $2.5 billion (pretax) for the
independent foreclosure reviews, litigation (primarily
mortgage-related), and other mortgage-related matters. Results for the
fourth quarter of 2012 are also expected to include approximately $700
million of pretax negative debit valuation adjustments (DVA) and fair
value option (FVO) adjustments related to the continued improvement in
the company's credit spreads.
In addition to the net tax benefit of the above items, results are also
expected to be positively impacted by a benefit of $1.3 billion,
primarily related to an income tax benefit from the recognition of
foreign tax credits made available from the restructuring of certain
non-U.S. subsidiaries. The aforementioned tax effects have no net impact
on regulatory capital during the fourth quarter of 2012.
Taking into account the effects of all the items above, Bank of America
expects earnings per share to be modestly positive for the fourth
quarter of 2012. Bank of America is scheduled to report fourth-quarter
2012 financial results on January 17, 2013.
Bank of America
Bank of America is one of the world's largest financial institutions,
serving individual consumers, small- and middle-market businesses and
large corporations with a full range of banking, investing, asset
management and other financial and risk management products and
services. The company provides unmatched convenience in the United
States, serving more than 55 million consumer and small business
relationships with approximately 5,500 retail banking offices and
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million active users. Bank of America is among the world's leading
wealth management companies and is a global leader in corporate and
investment banking and trading across a broad range of asset classes,
serving corporations, governments, institutions and individuals around
the world. Bank of America offers industry-leading support to more than
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easy-to-use online products and services. The company serves clients
through operations in more than 40 countries. Bank of America
Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial
Average and is listed on the New York Stock Exchange.
Forward-Looking Statements
Certain statements in this news release represent the current
expectations, plans or forecasts of Bank of America and are
forward-looking. Forward-looking statements can be identified by the
fact that they do not relate strictly to historical or current facts.
These statements often use words like “expects,” “anticipates,”
“believes,” “estimates,” “targets,” “intends,” “plans,” “predict,”
“goal” and other similar expressions or future or conditional verbs such
as “will,” “may,” “might,” “should,” “would” and “could.” The
forward-looking statements made in this press release include, without
limitation, statements concerning the agreements with Fannie Mae, the
expected timing and amounts of payments to be made, sources of those
payments and repurchases to be completed thereunder; statements
regarding the expected materiality of certain exceptions in the
agreements; expectations regarding the impact of the agreements with
Fannie Mae on pretax income for the fourth quarter of 2012; claims to be
extinguished by the agreements with Fannie Mae; estimates of the range
of possible loss for representations and warranties exposures at
December 31, 2012; expectations regarding loan levels in the servicing
portfolio following completion of the contemplated servicing transfer
transactions and the impact of such transactions on the company’s
financial results in the fourth quarter of 2012 and in future periods as
servicing is transferred; the anticipated schedule for servicing
transfers; statements regarding expense control measures; the company’s
commitment to work closely with its customers, buyers and the investors
who own the loans to ensure that customers receive service attentive to
their needs; the impact of certain items that are expected to affect the
company’s fourth-quarter 2012 financial results, including
mortgage-related matters, litigation expense, DVA and FVO adjustments,
and recognition of foreign tax credits; general expectations regarding
EPS for the fourth quarter of 2012; and other similar matters.
Forward-looking statements speak only as of the date they are made, and
Bank of America undertakes no obligation to update any forward-looking
statement to reflect the impact of circumstances or events that arise
after the date the forward-looking statement was made.
These statements are not guarantees of future results or performance and
involve certain risks, uncertainties and assumptions that are difficult
to predict and are often beyond Bank of America’s control. Actual
outcomes and results may differ materially from those expressed in, or
implied by, any of these forward-looking statements. You should not
place undue reliance on any forward-looking statement and should
consider all of the following uncertainties and risks, as well as those
more fully discussed under Item 1A. “Risk Factors” of Bank of America’s
Annual Report on Form 10-K for the year ended December 31, 2011 and in
any of Bank of America’s other subsequent Securities and Exchange
Commission filings: the company’s ability to obtain required approvals
or consents from third parties with respect to the MSR sale agreements,
including that there is no assurance that the applicable approvals and
consents will be obtained, and accordingly some of these transfers may
not be consummated; and other similar matters.
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