The variance in disclosure of the Federal Reserve and OCC brokered settlement among the publicly traded lenders raises questions as to whether investors have been fully informed of the prospective fourth quarter earnings hit.
Bank of America, Wells Fargo and Citigroup are all taking noticeable earnings hits because they will be adding on provisions previously set aside to cover the costs of any settlement in the foreclosure review. While the $8.5 billion total is in line with previous sketches of a deal, the $3.3 billion in cash lenders will collectively pay out to homeowners in foreclosure is a new development.
For Bank of America investors, the Independent Foreclosure Review settlement and a $10 billion deal with Fannie Mae appears to have the biggest impact. In total, both settlements appear they will cost the bank in excess of $5 billion.
Bank of America will make a cash payment to Fannie Mae of $3.6 billion and also repurchase for $6.75 billion certain residential mortgage loans in a settlement announced prior to Monday's stock market open. In that deal, Bank of America said it would take a hit to fourth quarter earnings by way of a $2.7 billion increase in its provision for representations and warranty costs with the GSE.Further down a press release announcing a flurry of developments to the bank's mortgage lending operations, Bank of America goes on to state its earnings will take a further $2.5 billion pre-tax hit in the fourth quarter for its Independent Foreclosure Review settlement. Bank of America also announced a deal to sell $306 billion in mortgage servicing rights to Nationstar Mortgage (NSM), Walter Investment Management (WAC) and Newcastle Investment Corp (NCT). While, a flurry of accounting items will color Bank of America's earnings in addition to settlement costs, the bank closed its Monday presser with a dim outlook for fourth quarter profit. "Taking into account the effects of all the items above, Bank of America expects earnings per share to be modestly positive for the fourth quarter of 2012," the bank said in a press release. As part of the IFR settlement, the Fed and OCC said on Monday announced that the foreclosure review had ended, and that the servicers subject to the foreclosure settlement would make $8.5 billion in cash payments and other assistance to borrowers victimized by servicing errors. Borrowers could receive up to $125,000 each, in a deal that is split between $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance such as modifications. Follow @agara2004 -- Written by Antoine Gara in New York