Bank of America - Deal Reached, Put Backs Increased

Way back in October, I wrote that I did not believe that BAC was reserving enough for Put back provisions (seekingalpha.com/article/230817-addressing-bofa-s-mortgage-data-reps-and-warranties) well, It looks as if I was right:

Bank of America Corp., the biggest U.S. bank by assets, resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6 billion to settle disputes that it sold loans based on faulty information.

The lender advanced 4.6 percent in early trading after saying fourth-quarter results would include a $2 billion impairment charge and a $3 billion provision.

Mortgage buyers including McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae are trying to force lenders to buy back loans that may have been made with incorrect data on income and home values. Before the settlement announced today, Bank of America faced $12.9 billion in unresolved putback demands on soured mortgages, with about half related to government-sponsored entities, according to an Oct. 19 presentation to investors. The company said in October it had reserved $4.4 billion for costs related to the problem.

“Bank of America believes that it has addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs,” the Charlotte, North Carolina-based company said in a statement today.

Hopefully this will go a long way in the effort to put this to bed and move on - until the next BAC issue.

Disclosure:  Long BAC equity and Merill preferred