Bank of America Settles with Investors for $8.5 Billion

As previously discussed on this site, Bank of America has quite a few investors none too pleased with the performance of their mortgage-backed securities.  Earlier this summer, BofA agreed to a settlement of $8.5 billion to cover nearly all of their liability from the transfer of Countrywide Financial first-lien mortgages.  According to the article by Rick Rothacker at the Charlotte New & Observer, the mortgage giant also agreed to pay another $5.5 billion to Freddie Mac and Fannie Mae to satisfy mortgage repurchase requests from the 2nd quarter of the year.

The bad news for BofA shareholders is that the bank’s 2nd quarter net income is projected to be between $3.2 billion an $3.7 billion, exclusive of the settlements.  The good news for the bank is that the Countrywide settlement is for 530 mortgage bond trusts with original principle of $424 billion; the settlement is equal to about 2% of the principal and removes one of the largest investor risks for BofA, according to the article.

What I find interesting is the precedent this sets:

“Our clients are pleased that Bank of America has agreed to take the steps necessary to put these claims behind it,” said Kathy Patrick of Gibbs & Bruns LLP, lead counsel for the investors. “Bank of America has charted a path our clients expect other banks will follow.”

I believe she is right.  Other major lenders with undoubtedly be pressured to reach repurchase agreements with private investors.  And Bank of America will likely face more demands from more investors.
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