Bank of America Corp. said on Monday that it has reached agreements with Fannie Mae to settle all outstanding claims surrounding almost all of the mortgage loans originated by Countrywide Financial Corp and Bank of America National Association from 2000 through 2008.
The settlment covers 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.
As part of the deal, BofA will pay Fannie Mae $3.6 billion and to 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."
Barton Winokur of Dechert LLP served as settlement counsel for Fannie Mae along with partner Mauricio Espana.
The bank added that it expects to cover settlement costs from existing reserves, plus an additional $2.5 billion, pretax charge taken in the 2012 fourth quarter.
The bank will also report a fourth-quarter 2012 pretax charge to partially fund an agreement to pay Fannie Mae to settle substantially all of Fannie Mae's outstanding and future claims for compensatory fees arising out of past foreclosure delays.
"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," BofA said. After laying out the costs associated with the settlement, as well as some other items, Bank of America said it expects "earnings per share to be modestly positive for the fourth quarter of 2012."