Bank of America’s pending settlement related to hundreds of billions of dollars worth of Countrywide-issued first-lien RMBS released Wednesday would include not only an $8.5 billion cash payment to trusts involved but also about $400 million of servicing changes and improvements, according to an investor law firm involved.
The Houston-based Gibbs & Bruns, which represents 22 institutional investors involved, said among other things Bank of America has agreed to move high-risk loans to “qualified” subservicing firms at the bank’s own expense.
The settlement also requires the bank to pay fees to the trusts involved if it does not meet loss mitigation standards benchmarked to industry norms on the loans it continues to service. Standards involved might include, for example, a default servicing timeline.
In addition, the settlement aims to ensure borrowers are considered for all applicable loan modification programs at once so that efforts to assist distressed borrowers are efficient and timely.
Finally, the bank will have to implement a cure process for mortgage and title documentation coupled with an agreement by BofA’s servicing unit to indemnify covered trusts for any losses caused by its inability to liquidate a mortgage as a first-lien loan.
The settlement with institutional investors represented by Gibbs & Bruns and The Bank of New York at press time was still subject to court approval and certain other conditions.
Gibbs & Bruns said the settlement is related to repurchase and mortgage servicing claims on 530 Countrywide RMBS trusts. The trusts involved had an original principal balance of $424 billion, according to BofA.
In addition to the payment-which would be made after final court approval-and the servicing improvements, BofA said it would take an additional $5.5 billion provision to its representations and warranties liabilities for both government-sponsored enterprise and non-GSE exposures in the second quarter.
BofA said the settlement would resolve nearly all its legacy Countrywide-issued first-lien residential mortgage-backed securitization exposure. With the settlement and a goodwill impairment charge of $2.6 billion included, the bank would see a second quarter loss of $0.88 to $0.93 per share.
While the bank’s second-quarter bottom line losses are large and it will see a moderate reduction of its capital ratios as a result, the second quarter charge decreases future financial uncertainty and considerably reduces the drag on future earnings from this concern, according to Fitch Ratings, which affirmed BofA’s individual and issuer default ratings in the wake of the pending settlement.
Among other things, an initial take on the settlement by Barclays Capital securitization researchers suggested the move could be positive for nonagencies as investors had been assuming relatively smaller benefits from rep and warranty-related repurchases prior to the Countrywide settlement.