After months of negotiations, Bank of America settled not one, but two legal disputes on Monday. While they will certainly prove costly to the nation’s second largest bank, analysts hope that this puts BofA and the housing market one step closer to healthier future.
In the first deal, BofA, along with nine other lenders including Wells Fargo, JPMorgan and Citibank, agreed to an $8.5 billion payout to cancel claims against the banks for foreclosure fraud and mismanagement. Bank of America’s portion will be $3 billion. The settlement means that homeowners who were foreclosed on during the specified time may be able to receive up to $125,000 for their losses.
The second deal was between BofA and government-controlled finance agency Fannie Mae. This time the bank agreed to pay $11 billion to settle Fannie’s claims that it made toxic loans and then sold them to the agency. The default of those loans has cost taxpayers millions of dollars already.
A major portion of those claims come from Countrywide Mortgage, which Bank of America bought in 2008 after the company failed from all its own bad loans. BofA assumed responsibility for those loans and has had to foot the bill. It bought Countrywide for $4 billion and has seen an estimated $40 billion to date in losses connected with soured mortgage loans.
While all of this is very painful at the moment for the bank, the hope is that this will help put many of it’s mortgage problems behind it and allow BofA to move forward financially on more solid footing. It may also give other mortgage lenders more incentive to lend, by taking some of the ambiguity out of the new rules and regulations.
“These agreements are a significant step in resolving our remaining legacy mortgage issues,” the bank’s chief executive, Brian T. Moynihan, said in a statement as quoted in the New York Times, “further streamlining and simplifying the company and reducing expenses over time.”