BofA Settles with Fannie Mae for $10 Billion

9:51 AM, Jan 7, 2013   |    comments
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Kim Hjelmgaard, USA TODAY

Bank of America said Monday that it has reached a $10 billion settlement with federal mortgage issuer Fannie Mae over allegations of the improper handling of mortgages during the financial crisis.

The Charlotte, N.C-based bank will pay $3.6 billion to settle claims related to the sale and delivery of certain residential mortgage loans.

And Bank of America (BAC) will also repurchase $6.75 billion worth of residential mortgage loans it sold to Fannie Mae for less than what the bank said they worth.

In futures trading, the bank's stock was up about 2%.

Bank of America's CEO Brian Moynihan said in a statement announcing the settlement: "Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time."

The bank also said it had agreed to sell the servicing rights on 2 million residential mortgage loans worth about 306 billion.

The claims relate to loans that Bank of America and Countrywide Financial issued from Jan. 1, 2000, through Dec. 31, 2008. Bank of America bought the now-defunct Countrywide Financial in July 2008, months before the financial meltdown triggered by the bursting of a residential real estate bubble. Countrywide had been a giant in mortgage lending but was also known for approving high-risk loans.

The bank said the settlement will reduce the firm's pretax income by approximately $2.7 billion in the fourth quarter of 2012.

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