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Mother of All Repurchase Disputes Resolved

BofA settles with Fannie, sells MSRs

Jan. 7, 2013

By Mortgage Daily staff


An agreement reached between the Federal National Mortgage Association and Bank of America Corp. will resolve one of the largest repurchase rifts ever in mortgage banking history. In addition, servicing on more than $200 billion in residential loans is trading hands as part of the transaction and shaking up top-servicer rankings.

Almost a year ago, BofA disclosed its intention to stop selling loans to Fannie Mae. The move was a result of surging repurchase costs.

At the time, unresolved repurchase claims at the Charlotte, N.C.-based company exceeded $14 billion.

"We are not able to predict changes in the behavior of the GSEs based on our past experiences," a February 2012 filing with the Securities and Exchange Commission stated. "Therefore, it is not possible to reasonably estimate a possible loss or range of possible loss with respect to any such potential impact in excess of current accrued liabilities."

Complicating matters was Fannie's appointment of Tim Mayopoulos in June 2012 to the post of chief executive officer. Mayopoulos was the general counsel for BofA until he was reportedly fired after confronting former BofA chief financial officer Joseph L. Price about the disclosure of the massive losses.

On Monday, BofA announced that it reached a settlement with Fannie to resolve repurchase claims on $1.4 trillion in loans sold directly to Fannie by entities related to Bank of America, N.A., or BofA-subsidiary Countrywide Financial Corp. from Jan. 1, 2000, until Dec. 31, 2008. The aggregate principal balance on the loans stood at $0.297 trillion as of Nov. 30, 2012.

BofA will make a $3.55 billion cash payment and repurchase 36,000 residential loans for $6.75 billion.

The deal has the blessing of Fannie's regulator, the Federal Housing Finance Agency.

"This is a major step forward in resolving issues from the past and providing greater certainty in the marketplace, which remain critical FHFA goals as conservator," FHFA Acting Director Edward J. DeMarco said in a statement.

In its own statement, Washington, D.C.-based Fannie said that an additional $1.3 billion payment by BofA will address servicing issues.

The deal extinguishes unresolved claims by Fannie on $11.2 billion in loans as of Sept. 30, 2012. It also settles any future representations and warranties claims associated with covered loans.

"A favorable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers," Fannie Executive Vice President and General Counsel Bradley Lerman said in the statement. "Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests."

BofA will add $2.5 billion in representations and warranties provision in the fourth quarter to cover the cost of the settlement not already included in existing reserves.

In addition, the agreements substantially resolve outstanding claims for compensatory fees at a cost of $0.3 billion to BofA.

The agreement clarifies the parties' obligations with respect to time frames for mortgage insurance payments and other actions and parameters for potential bulk settlements and by providing for cooperation in future dealings with mortgage insurers.

"As we enter 2013, we sharpen our focus on serving our three customer groups and helping to move the economy forward," BofA Chief Executive Officer Brian Moynihan said in the announcement. "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."

BofA also said it reached an agreement to sell mortgage servicing rights on 2 million agency and non-agency residential loans with an aggregate unpaid principal balance around $306 billion. The transfer of servicing is expected to occur in stages throughout this year as investor and other third-party approvals are received.

Fannie noted that it approved the transfer of servicing rights on 941,000 loans from BofA to specialty servicers.

A separate announcement from Nationstar Mortgage Holdings Inc. indicated that subsidiary Nationstar Mortgage LLC agreed to acquire servicing rights from BofA on around $215 billion in residential loans. Nearly half -- 47 percent -- of the loans are agency mortgages, while the rest are held in private-label securitizations. The Lewisville, Texas-based company is paying around $1.3 billion for the servicing rights with $0.7 billion coming from a co-investment by affiliate Newcastle Investment Corp. and Fortress-managed funds.

Nationstar said the deal will more than double its customer base to 2.5 million from 1.2 million. Its servicing portfolio stood at around $425 billion, pro-forma for this transaction, plus another $13 billion in government servicing that Nationstar acquired from BofA in the fourth-quarter 2012. The servicing portfolio leaves Nationstar as the fifth-biggest residential servicer in the country behind US Bancorp, which serviced $270.3 billion as of Sept. 30.

Newcastle, itself, issued a statement confirming its acquisition of excess mortgage servicing rights on $215 billion in loans and its Jan. 4 acquisition of an interest in excess MSRs on a $13 billion Ginnie Mae pool.

BofA's book value is expected to benefit by $650 million from the transactions.

The bank noted that its servicing portfolio included 775,000 loans that were at least 60 days past due as of Dec. 31, 2012, down from 936,000 three months earlier. The planned MSR sale is expected to reduce the number of delinquent loans by 232,000.

BofA additionally warned that fourth-quarter pre-tax earnings are expected to be negatively impacted by approximately $2.5 billion for the independent foreclosure reviews, mortgage-related litigation and other mortgage-related matters.

Bank of America profileNationstar profileFannie Mae profile

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