Bank of America settles with RMBS investors for $8.5 billion

Bank of America (BAC) agreed to pay $8.5 billion to investors who lost money on soured residential mortgage-backed securities that were assumed by the banking giant after it acquired Countrywide Financial Corp. Bank of America reached the agreement with Bank of New York Mellon (BK), which served as trustee for 530 MBS trusts with a combined principal balance of $424 billion. BofA plans to record a second-quarter provision of $5.5 billion to cover any remaining representation and warranties issues. After accounting for the settlement, which is larger than BofA’s earnings since the beginning of the financial crisis, the company now expects to report a second-quarter loss of $8.6 billion to $9.1 billion. “The key driver of the expected loss is the representations and warranties provision of $14 billion, including $8.5 billion for the settlement agreement on legacy Countrywide mortgage repurchase and servicing claims, and an additional $5.5 billion increase in the company’s representations and warranties liability for non-GSE exposures and, to a lesser extent, GSE exposures,” BofA said in a statement. Bank of America acquired Countrywide Financial Corp., one of the nation’s largest subprime lenders, after the 2008 financial crisis. Since then, investors have saddled the bank with numerous lawsuits over RMBS losses tied to Countrywide home loans. Bank of America said the settlement resolves nearly all of the legacy first-lien RMBS issues stemming from Countrywide. “This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us,” BofA Chief Executive Officer Brian Moynihan said. “We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.” The agreement still requires court approval. Write to: Kerri Panchuk.