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Bank of America to pay $10.35 billion to Fannie Mae

Staff writer |
Bank of America agreed to pay mortgage finance firm Fannie Mae about $10.35 billion to settle claims on loans it originated and sold to Fannie Mae through the end of 2008.

Bank of America's loans originated and were sold directly to Fannie Mae from January 1, 2000 through December 31, 2008 by entities related to Countrywide Financial Corporation (legacy Countrywide) and Bank of America, National Association (BANA).

Bank of America also reported that it signed definitive agreements to sell the servicing rights on 2.0 million residential mortgage loans totaling approximately $306 billion, as measured by the aggregate unpaid principal balance as of November 30, 2012.

The agreements with Fannie Mae cover 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 agreement, Bank of America will make a cash payment to Fannie Mae of $3.6 billion and also 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. These actions are expected to be covered by existing reserves and an additional $2.5 billion in representations and warranties provision recorded in the fourth quarter of 2012.

Bank of America also agreed to make a cash payment to Fannie Mae to settle substantially all of Fannie Mae’s outstanding and future claims for compensatory fees arising out of past foreclosure delays. This payment is expected to be covered by existing reserves and an additional provision of $260 million recorded in the fourth quarter of 2012.

Together, these actions are expected to reduce Bank of America’s pretax income by approximately $2.7 billion in the fourth quarter of 2012.

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