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Bank of America Settles With Freddie Mac for $404 Million

NEW YORK (TheStreet) -- Bank of America (BAC - Get Report) on Monday agreed to pay $404 million to settle all potential claims on loans sold by the bank to Freddie Mac (FMCC) through 2009.

The bank will receive credits of $13 million for loans already repurchased from Freddie Mac, and for other adjustments. The agreement covers 716,000 loans originated by Bank of America from 2000 through 2009.

Bank of America had previously settled Freddie's claims on loans sold to the government sponsored enterprise (GSE) by Countrywide Financial, which the bank purchased in 2008.

Freddie Mac and its sister GSE Fannie Mae (FNMA) were taken under government conservatorship at the height of the credit crisis in September 2008.  The GSEs purchase and securitize the bulk of newly originated mortgage loans in the United States.  Bank of America entered into a $10.3 billion settlement with Fannie Mae in January, covering $1.3 trillion in mortgage loans sold to Fannie through 2008.

So Bank of America has now settled claims on loans it or Countrywide sold to both GSEs, however, the bank hasn't yet settled the Federal Housing Finance Agency's lawsuit seeking to recover losses on private label residential mortgage-backed securities (RMBS) sold by the bank or Countrywide to Fannie and Freddie.

JPMorgan Chase (JPM) settled its owns GSE RMBS claims for $5.1 billion late in October, which was part of JPM's landmark $13 billion settlement with the Department of Justice and other government authorities announced on Nov. 19.

Atlantic Equities analyst Richard Staite on Nov 21 estimated that Bank of America's expected RMBS settlement with the FHFA could cause a "similar hit" to earnings, since "JPM paid $7bn in compensation and a $2bn fine."

But even if that happens, Staite still calls Bank of America his "top sector pick," because of the company's continued efficiency improvement and strong capital levels.

Bank of America's shares were up slightly in premarket trading to $15.84.

Interested in more Bank of America? See TheStreet Ratings' report card for this stock.

BAC ChartBAC data by YCharts


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Must Read: Killing GSEs Could Kill Fixed-Rate Mortgage Loans, Says Bove

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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