Daily News: March 27, 2014

BofA to Pay $6.3B to Settle FHFA Lawsuit

Bank of America announced it reached a settlement with the Federal Housing Finance Agency (FHFA) as conservator of Fannie Mae and Freddie Mac to resolve all of FHFA’s residential mortgage-backed securities (RMBS) litigation with Bank of America, as well as other legacy contract claims.

The FHFA settlement resolves four lawsuits FHFA filed against Bank of America, Countrywide, and Merrill Lynch entities beginning in September 2011, alleging they falsely represented that the underlying mortgage loans complied with certain standards. Approximately $57.5 billion (in purchase cost) of private-label RMBS purchased by Fannie Mae and Freddie Mac are covered by the settlement.

Under terms of the settlement, Bank of America will make cash payments totaling approximately $6.3 billion to Fannie Mae and Freddie Mac. In addition, Bank of America will purchase certain RMBS at fair market value (approximately $3.2 billion). In return, FHFA’s pending lawsuits will be dismissed with prejudice and Bank of America and its affiliates will be released from all securities law and fraud claims, as well as certain other claims related to the private-label RMBS in dispute.

The bank said the FHFA settlement is expected to reduce first-quarter 2014 income by approximately $3.7 billion (pretax), or $0.21 per common share (after tax). The company expects its Basel 3 common equity tier 1 capital ratio for the first quarter ending March 31, 2014 will be in line with the fourth quarter ended December 31, 2013, based on the impact of the FHFA settlement and other factors, including interest rates, that are known as of today’s date.