CHARLOTTE, N.C. — Looking to resolve one of its major mortgage headaches, Bank of America Corp. today said it has paid $2.8 billion to settle claims related to soured Countrywide Financial Corp. mortgage loans.
The agreements with mortgage giants Freddie Mac and Fannie Mae reduce some of the uncertainty facing the nation's biggest bank over its mortgage liability. But Bank of America still faces claims from other investors who bought questionable home loans from Countrywide and the Charlotte bank during the housing boom.
Investors cheered the move, sending Bank of America shares up more than 6 percent today to $14.15. The shares haven't been above $14 since August.
Bank of America said it will set aside $3 billion in the fourth quarter to cover the settlements and other potential losses related to mortgage loans sold to Freddie and Fannie. The bank will also take a separate $2 billion charge as it writes down the value of its home loans unit, which grew dramatically with the 2008 purchase of California-based Countrywide.
Mortgage repurchase claims are one of the many problems still plaguing banks in the wake of the nation's financial meltdown. During the housing boom, banks sold off many of the loans they made to investors, allowing them to make even more loans. In certain circumstances, however, the investors who bought the loans can require banks to buy them back when the mortgages go bad.
For Bank of America, the settlements with the two government-controlled mortgage entities are the latest example of the high cost of the Countrywide acquisition. Buying the troubled lender for an initial price of $4 billion has led to quarterly losses, legal settlements and an ongoing investigation of foreclosure practices.
The Freddie and Fannie agreements are somewhat surprising because Bank of America chief executive Brian Moynihan has previously said he planned to battle claims by mortgage investors "loan by loan." But he has also repeatedly expressed his desire to put "legacy issues" behind the bank.
In a conference call with analysts today, chief financial officer Chuck Noski said the agreements should not be seen as a "departure" from the bank's previous stance. Noski said the bank has pledged to act "act responsibly" in cases where investors meet the standard for requiring mortgage buybacks. But, he said, Bank of America will continue to "vigorously defend" claims that do not meet that benchmark.
Although the bank could still face more expenses related to loans owned by Freddie and Fannie, Noski said the bank has now "largely addressed" its remaining exposure to those two entities with the settlements and the amount it has set aside for losses.
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