Bank of America confirms $9.5bn mortgage lenders settlement

<p>The bank will make payments to Fannie Mae and Freddie Mac.</p>

The Bank of America has confirmed it has settled a number of lawsuits filed by the Federal Housing Finance Authority (FHFA) over the US housing crisis.

It was announced that the bank will pay $9.5 billion (£5.7 billion) in order to settle the charges. According to the FHFA, Bank of America misled US mortgage lenders.

In a statement, the bank described the resolution of the agreement as "one of the most significant remaining pieces" of housing market-related litigation against the company.

"This settlement… represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit," said FHFA director Melvin Watt.

Bank of America was not the only organisation to be targeted by the FHFA for its part in the US housing crisis, as Countrywide and Merrill Lynch – both of which are owned by Bank of America – were sued by the regulatory body as well.

Laws broken

The FHFA stated that alleged violations of federal and state securities laws in connection with private-label, residential mortgage-backed securities were among those broken by Bank of America during the housing crisis.

Under the terms of the deal, Bank of America will purchase certain residential mortgage-backed securities (RMBS) at fair market value, which is expected to be approximately $3.2 billion. In return, FHFA confirmed that all of its pending lawsuits "will be dismissed with prejudice and Bank of America and its affiliates will be released from all securities law and fraud claims, as well as certain other claims related to the private-label RMBS in dispute".

The FHFA also revealed that some $57.5 billion (in purchase cost) of private-label RMBS purchased by Fannie Mae and Freddie Mac are covered by the settlement.

Last year, Citigroup announced that it would pay $395 million to Freddie Mac in order to settle 3.7 million loans sold to the firm between 2000 and 2012. Tom Fitzgerald, spokesman for Freddie Mac, described the agreement as an "equitable one" and noted that it "allows both companies to move forward", while Jane Fraser, chief executive of CitiMortgage, said the agreement was an "important milestone".

Find up to date information on the FTSE 100 and spread betting strategies at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.