Bank of America has reached a settlement of $11 billion and this will bring an end to Fannie Mae’s various claims that they were improperly sold. This will also resolve other problems that both companies faced with foreclosures and mortgages.
This is an important step for the Bank who is also in the process of solving claims from different investors. This agreement covers 44% of pending claims against the entity. Bank of America purchased Countrywide during 2008 still has to wait for an approval from court to settle debts with various private investors. The bank is also in litigation with MBIA, a mortgage insurance company.
This will result in a bank making a very small profit especially for the fourth quarter and the bank is planning to release an official report on January 16. The bank is also planning to purchase $6.75 billion of some bad loans they provided to several mortgage companies. They will purchase these loans based on an outstanding principle. These loans will cover a balance of $400 billion and will finally end all these unresolved claims.
Freddie Mac and its partner Fannie Mae purchase mortgages from different banks in the United States and then sell them as bonds for investing companies. The problem happened when the bank sold these loans to the companies during mortgage booms without informing them about all the foreclosures and debts associated with them.
The Bank said that the current repurchasing settlement will be completely covered by the reserves and $2 billion will be put aside for the third quarter. Bank of America already put money aside to cover all of this and is planning to save money to cover their balance during the next quarter.
The bank has previously sold rights to assemble payments that are worth $300 billion to Walter Management Corporation. The bank also has pending issue with the investment company Nation star.
The bank has announced several times that are very eager to decrease expenses in their mortgage unit due to other costs increasing and hiring more staff. The unit has 45,000 employees now in their mortgage and investment department.
This isn’t the first problem that takes place between the two entities. Three years ago, the bank ended a settlement with Freddie Mac due to loan requests. The shares of the bank didn’t move from $12 today but many business experts believe that the shares will decrease over the next days.