Putting to rest one of its biggest remaining headaches, Bank of America Corp. has agreed to pay $9.5 billion to settle claims by Fannie Mae and Freddie Mac.
The government-sponsored mortgage giants had demanded compensation from the Charlotte, N.C., bank for losses on housing-boom loans that produced mass defaults during the financial crisis.
The settlement, announced Wednesday, resolves all claims against Bank of America by the Federal Housing Finance Agency, BofA said. The FHFA is the regulator established as a conservator for Fannie and Freddie when the giant buyers and guarantors of home loans went insolvent during the financial crisis.
BofA already had suffered about $50 billion in losses and legal costs stemming from the mortgage meltdown in 2007 and the global financial crisis that ensued the following year – more financial damage than any other major bank.
But after a long string of settlements, BofA's stock has more than tripled in price over the last few years. What’s more, it reached another milestone Wednesday when the Federal Reserve deemed it strong enough to reward its shareholders by raising its annual dividend from 4 cents to 20 cents and OK’d a plan to repurchase its own shares.
Separately Wednesday, Bank of America said it agreed to a $25-million settlement of a 2010 lawsuit brought by the New York attorney's general's office, which had accused the bank of misleading investors about mounting losses at Merrill Lynch before it acquired the Wall Street giant in 2008.
BofA said it would pay $15 million to reimburse the attorney general for investigation and litigation costs, and adopt certain corporate governance changes. The remaining $10 million is to be paid by the bank's former chief executive, Ken Lewis, who also agreed to be banned from leading any public company for three years.
The bank said the FHFA settlement resolves "one of the most significant remaining pieces" of its exposure to the enormous litigation surrounding securities backed by housing-boom mortgages.
It covers not only BofA's liability, but damages attributable to the two major mortgage market players it acquired during the crisis: Countrywide Financial in Calabasas, the nation's largest subprime lender, and Merrill Lynch, which had been a major generator of bonds backed by high-risk mortgages.
The bank is not yet out of its thicket of mortgage troubles.
It noted that it has previously described additional investigations and lawsuits that could lead to more penalties and fines by the U.S. Department of Justice, state attorneys general and other members of a financial fraud task force made up of various state and federal authorities.
"The company continues to cooperate with and has had preliminary discussions about a potential resolution of these matters," it said.