Bank of America in $11.6bn settlement with Fannie Mae

The settlements and transactions and other charges will result in Bank of America posting only a small profit for 2012’s fourth quarter. The bank, one of the largest in the world, is due to report results on January 17.

Chief executive Brian Moynihan said the agreements are “a significant step in resolving our remaining legacy mortgage issues”.

Bank of America is paying $3.6bn to Fannie Mae and buying back $6.75bn of bad loans from the mortgage company to clear up all claims that government-owned Fannie Mae had made against the bank.

Fannie Mae and its sibling, Freddie Mac, another US government agency, have been pushing banks to buy back loans they sold to the two companies that never should have been sold to them because the loans did not meet the companies’ criteria for purchas- ing.

Bank of America said most of the settlement would be covered by reserves, and another $2.5bn, before taxes, that it set aside in the fourth quarter.

A separate settlement over foreclosure delays will result in Bank of America paying $1.3bn to Fannie Mae, the mortgage agency said.

Bank of America had already set aside money to cover most of that, but took another $260m charge in the fourth quarter to cover the balance.

Bank of America also sold the rights to collect payments on about $306bn of loans to Nationstar Mortgage Holdings and Walter Investment Management Corp.

Nationstar is paying $1.3bn for the right to service some $215bn of loans, while Walter Investment is paying $519m for the right to service about $93bn of mortgages.