Bank of America Corporation
) announced a settlement with
) worth about $10.3 billion. The settlement includes the
resolution of all outstanding and potential repurchase along with
other claims relating to all major residential mortgage loans
originated and sold directly to Fannie Mae by BofA from January
1, 2000 through December 31, 2008.
Moreover, BofA signed definitive agreements to vend the servicing
rights on 2 million residential mortgage loans worth $306 billion
as of November 30, 2012.
Such moves by BofA at the very onset of the New Year demonstrate
the company's aim to resolve all mortgage related issues, thereby
reducing costs over the upcoming period. Moreover, such
settlements are anticipated to aid in the further revival of the
economy. Alongside, such strategic decisions are expected to bode
well for BofA and help it gain investors' confidence.
Settlement with Fannie Mae
Along with buy back worth $6.75 billion of residential mortgage
loans from Fannie Mae, BofA will make cash payment of $3.6
billion. Moreover, an undisclosed cash payment for settling
almost all Fannie Mae's outstanding and future claims related to
delays in foreclosures has been announced.
Collectively, these settlements are anticipated to lessen BofA's
pre-tax income by about $2.7 billion in the fourth quarter of
Agreements to Vend Mortgage Servicing Rights
Two definitive agreements have been signed by BofA with two
different counterparties to vend the servicing rights on some
residential mortgage loans. Notably, these loans were serviced
for Fannie Mae,
), the Government National Mortgage Association (Ginnie Mae) and
private label securitizations. However, these transactions await
the approval of certain third parties.
Further, these transfers of MSRs are scheduled to occur in stages
in 2013. The aforementioned transactions are anticipated to
record a benefit of about $650 million over the book value of
MSRs. Specifically, half of this amount is to be recorded in the
fourth quarter of 2012, while the remaining is estimated to be
recorded in the upcoming quarters at the time of servicing
BofA currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We believe such settlements will augur
well for the company and help boost earnings, inducing
shareholders' confidence, which might lead to positive earnings
estimate revisions. This, in turn, could cause an upgrade in the
BANK OF AMER CP (BAC): Free Stock Analysis
FREDDIE MAC (FMCC): Free Stock Analysis
FANNIE MAE (FNMA): Free Stock Analysis Report
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