The upper end of an estimate of the potential cost for Bank of America Corp. to settle lawsuits filed on behalf of Fannie Mae and Freddie Mac for losses on private-label mortgage-backed securities is double the amount recently agreed to by JPMorgan Chase & Co.
Chase disclosed last week that it reached a $4 billion settlement with Fannie, Freddie and the two companies’ regulator, the Federal Housing Finance Agency.
The $4 billion settlement resolves pending litigation tied to $33.8 billion in MBS issued by the New York-based firm and subsidiaries Bear Stearns and Washington Mutual.
Fitch Ratings released a report Tuesday that noted Chase’s settlement worked out to around 12 percent of the original face value of the Chase MBS cited in FHFA’s complaint.
Fitch noted that another FHFA settlement reached earlier this year with UBS for $885 million worked out to roughly 14 percent of the face value of the MBS cited in that complaint.
Fitch said the amounts of the settlements were substantial given the level of losses to date on the underlying MBS, reflecting an aggressive posture being taken by the government in resolving litigation against banks involved in pre-crisis matters.
In all, FHFA filed 17 private-label MBS lawsuits on behalf of Fannie and Freddie in 2011, including the Chase and UBS actions.
Fitch said it believes that BofA has more exposure than any of the other banks in the lawsuits. Including MBS issued by subsidiaries Countrywide Financial Corp. and Merrill Lynch, the face value of MBS in FHFA’s lawsuit against BofA is around $57 billion.
“It is challenging to estimate the exposure for any individual institution, and BofA’s other mortgage-related negotiations and settlements may also influence the outcome of this litigation,” Fitch said. “However, using the JPM and UBS settlements as a proxy, Fitch estimates BofA’s figure could range between $5 billion and $8 billion, should the bank decide to settle.”
While most financial institutions don’t provide detailed information about the amount of their litigation reserves, Fitch indicated that BofA’s current rating would not likely be impacted by a settlement of that size.
