Bank of America in $8.5 Billion Mortgage Settlement

Bank of AmericaBank of America (BAC) and its Countrywide unit will pay $8.5 billion to settle claims that the lenders sold poor-quality mortgage-backed securities that went sour when the housing market collapsed.

The deal, announced Wednesday, comes after a group of 22 investors demanded that the Charlotte, N.C. bank repurchase $47 billion in mortgages that its Countrywide unit sold to them in the form of bonds.

The group, which includes the Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management, argued that Countrywide enriched itself at the expense of investors by continuing to service bad loans while running up servicing fees.

Bank of America, which bought Countrywide in 2008 for $4 billion, has denied those claims.

Bank of America CEO Brian Moynihan said Wednesday that the settlement would minimize "future economic uncertainty" in the banking business and "clean up the mortgage issues largely stemming from our purchase of Countrywide."

The settlement is subject to court approval and covers 530 trusts with original principal balance of $424 billion.

Citi analyst Keith Horowitz said the settlement, which amounts to only 2 percent of the original principal balance, removes one of the largest investor risks for Bank of America.

"We think this could prove to be a step forward" for Bank of America, Horowitz said. It would show investors that the bank can manage through crisis without raising additional capital.

As a result of the settlement, Bank of America put its second-quarter loss at $8.6 billion to $9.1 billion. Excluding the settlement and other charges, the bank expects to post a quarterly loss of $3.2 billion to $3.7 billion.

Shares of Bank of America Corp. jumped more than 4 percent, or 48 cents to $11.30 before the market opened, with investors happy that the bank can put very big uncertainty behind it.

Investors may now be more confident that they can get similar concessions from other major U.S. banks that created markets for mortgage-backed securities with questionable pedigrees.

Yet stocks in the financial sector were rising in electronic trading Wednesday, likely because the Bank of America deal presents a framework for others to follow.

Increase your money and finance knowledge from home

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

It is good that the press gives us therneed to know but, if this has nothing to do with B of A "Removing the ARM terams from my loan and lowering the value in line with todays market then I DO NOT NEED TO KNOW THAT SOMEONE ELS (RICH) SUES THEM.

I have not been late since my home was built in 2006 todate and have $90,000 cash in my home but, I can not and will not make any more improvments because when the rates go up I am going to wake away from it. At this point I am just a good renter. Read my point not my spelling or typing.

June 30 2011 at 2:36 PM Report abuse rate up rate down Reply

Save the banks seems to be the theme in Washington. When it comes to saving the home owner we are on our own. . BoA pays 8.5 of a 424 billion debt. That is 2% or 98% reduction of what was owed. See what happens if you ask your bank to cut one penny.If you want to make a bigger mistake, look into the goverments relief program. So the banks get together ,make a deal that help themself and the homers are left to fend for themself.

June 29 2011 at 7:25 PM Report abuse rate up rate down Reply

Like they give crap after the government bailed their asses out, they will recoup their so-called loss on some other bank related fees. I would never bank with a world bank anyway. If Americans were smart they would close all their accounts with these schysters and bank with a local credit union or community bank.

June 29 2011 at 1:46 PM Report abuse rate up rate down Reply

Too bad they couldn't use those funds to help out some home owners.

June 29 2011 at 11:20 AM Report abuse +1 rate up rate down Reply

NOTHING ABouth the HOmeowner????? who was the main catalyst behind these toxic investments -- without the homeowner these shylocks would not have their investments to fraud, flip, process BAD BAD BAD -- should have failed all of you.

June 29 2011 at 10:56 AM Report abuse +2 rate up rate down Reply