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Bank of America to Set Aside $14 Billion in Mortgage Settlement

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  • Bank of America to Set Aside $14 Billion in Mortgage Settlement

    June 29, 2011

    Bank of America announced plans on Wednesday to set aside $14 billion to pay investors who bought securities it assembled from mortgages that later soured, driving the company to an expected loss of $8.6 billion to $9.1 billion in the second quarter.

    The whopping charge represents the biggest single settlement tied to the subprime mortgage boom and the subsequent financial crisis of 2008.

    More than half of the $14 billion will go to help settle claims by a group of heavyweight holders including Pimco, BlackRock and the Federal Reserve Bank of New York, which have been pressing for a settlement since last fall. About $8.5 billion would go to settle claims by investors that purchased mortgage securities that sou

    “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 Brian T. Moynihan, the bank’s chief executive. “We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.” Bank of America bought Countrywide Financial, the subprime mortgage lender whose practices have come to symbolize the excesses of the housing boom, in 2008.

    In trading before the markets opened, Bank of America shares rose roughly 4 percent, a sign that investors hope this deal will lift a cloud that has been hanging over the stock since last year and is a key reason it has underperformed giant peers like J.P. Morgan Chase and Citigroup.

    The deal will also require Bank of America to improve its payment collection process by hiring specialists to focus on high-risk loans and to do a better job of tracking whether the bank is adhering to its own internal loan-servicing standards.

    The bank said those additional obligations, on top of the new servicing requirements that were part of a deal with federal regulators, will result in a charge of $400 million as the bank lowers the value of its so-called mortgage servicing rights.

    That $14 billion charge also includes a $2.6 billion write-off in the value of its home lending business – a move that tacitly suggests the bank vastly overpaid for Countrywide. The charge also will also cover additional costs of dealing with delayed foreclosures.

    The negotiations toward a settlement began last fall but picked up speed in recent weeks as the end of the second quarter approached. For the investors, settling avoids a costly, multi-year legal fight, while Bank of America can clear away one of the biggest clouds hanging over the company.

    Bank of America, JPMorgan Chase, Citigroup and Wells Fargo have the greatest exposure to the legal claims that they bundled troubled home loans and sold them as sound investments. Together, they are likely to absorb roughly 40 percent of the industry’s mortgage-related losses.

    In a research note, Paul Miller of FBR Capital Markets projected that Bank of America could face a total of $25 billion of losses from the soured mortgages, the most of any of the major banks.

    Bank of America has already paid out or set aside about $17 billion. So the settlement would bring the bank’s losses in line with those projections.

    Other big banks face sizable risks, too. Mr. Miller predicted that Chase could expect losses reaching as much as $11.2 billion. Wells Fargo has potential losses of up to $5.2 billion, while Citigroup could see losses top $3.3 billion.

    Once it is approved by Bank of America’s board, which met Tuesday, the settlement will require court approval in New York. If successful, the bank hopes to turn investor attention away from the huge payout and to the bank’s performance in the second half of the year.

    Under the terms of the accord, Bank of America would deliver the money to the trustee for the securities, Bank of New York Mellon, which would distribute it to the institutional investors.

    The issue of how much Bank of America will have to compensate investors in mortgage securities it assembled has been hanging over the bank’s shares since last fall. But the bank does not anticipate having to raise capital or sell stock to find the money for the settlement.

    Still, other huge risks loom from the fallout of the subprime mortgage crisis. All 50 state attorneys general are in the final stages of settling an investigation into abuses by the biggest mortgage servicers, and are pressing the big banks to pay up to $30 billion in fines and penalties.

    What’s more, insurance companies that backed many of the soured mortgage-backed securities are also pressing for reimbursement, arguing that the original mortgages were underwritten with false information and did not conform to normal standards.

    In an interview on Tuesday, before reports of the Bank of America settlement, Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, worried that the unresolved mortgage claims continued to hurt the broader economy.

    “Unresolved legal claims could serve as a drag on the recovery of the housing market,” Ms. Bair said. “The healing of the housing market is essential to the recovery of the broader economy.”

    The huge settlement represents a sharp move away from the position that Mr. Moynihan initially adopted last fall when the legal effort by the investors began.
    Mr. Moynihan said in October, “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”

    Not long after that, however, the bank started negotiations with the investor group, led by a Houston lawyer, Kathy Patrick. And in January, it reached a settlement with Fannie Mae and Freddie Mac, the government-controlled housing finance giants, to buy back $2.5 billion in troubled mortgages, settling potential claims from them.
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."

  • #2
    The lawyers and a few of the big investors, such as the insurance companies will see that money, not the people whose lives were ruined by the corruption and games played in those banks. Remember that the settlement in the class action suit against Countrywide, et al, before BofA assumed it was a mere $400 million, and the participants in that suit saw about $100 each. None of them recovered any of the property they had before Countrywide and its ilk conned them. The bottom line is that the money will change from one wealthy hand to another, and the perpetrators will never be found 'guilty' or punished. These people should be prosecuted as criminals, but of course it will never happen.


    • #3
      Gee, I guess that BOA may actually end up owning my mortgage instead of securities fund 2005-WTF. What a deal for them!!!


      • #4
        I can't stand BOA. So good they have to pay up.


        • #5
          Wiping the crocodile tears out of my eyes as we speak.................
          All information contained in this post is for informational and amusement purposes only.
          Bankruptcy is a process, not an event.......


          • #6
            I am waiting to see if this news and the upcoming state AG settlements cause the FC spigot to open up again... and for FC's to start moving again.


            • #7
              I think the problem is they need a clear resolution of the MERS issue. Without that there can be no clean transfers of title. I think the only activity for a while will be voluntary give-ups, short sales and deed in lieus.
              filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!


              • #8
                And it is all more evidence that WE can use if we start standing up to these crooks. There is an ebook available at www.stopthebanksters.org that I HIGHLY recommend any homeowner and any attorney devour.

                So many people would love to see BOA and other banks be brought to their knees. The only way we will ever see that is if we start taking action. I know it is scary, but they just want to keep us scared, and POOR. The longer we stay scared, the richer they get.
                Tried debt settlmnt, stopped paying all cards 5/09/--filed bk no asset ch7 in 11/2010---DISCHARGED 2/2011!!! Still waiting to see how much more Bank of America and Fannie Mae can ruin us


                • #9
                  Originally posted by keepswimming View Post

                  Correct link.
                  All information contained in this post is for informational and amusement purposes only.
                  Bankruptcy is a process, not an event.......


                  • #10
                    yes, sorry about that. and thanks frogger!
                    Tried debt settlmnt, stopped paying all cards 5/09/--filed bk no asset ch7 in 11/2010---DISCHARGED 2/2011!!! Still waiting to see how much more Bank of America and Fannie Mae can ruin us


                    • #11
                      Nothing would give me more joy then to see Bank of America go the route of Washington Mutual.


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