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The clash between Bank of America and mortgage finance giant Fannie Mae over bad loans is finally resolved, with the bank's announcement that it will settle for approximately $11.6 billion.
The bank deal with Fannie Mae includes a cash payment of $3.55 billion, a $6.75 billion commitment to buy back bad mortgages and $1.3 billion in fees. The settlement will be largely covered by the bank's reserves, plus $2.5 billion, before taxes, that it put aside in the last quarter of 2012.
Along with the other big banks, Bank of America has been under fire from Fannie Mae and Freddie Mac since the housing market collapsed. The two mortgage-securitization giants accuse the five largest banks of selling them loans they knew were below standard.
Bank of America's purchase of Countrywide Financial in 2008 increased its exposure to bad mortgages. During third quarter 2012, the bank settled $2.4 billion in class-action lawsuits involving its 2008 purchase of Merrill Lynch.
This latest settlement with Fannie Mae will negatively affect fourth-quarter profits, which are due to be announced Jan. 17, according to the bank.
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