Fannie Mae (FNMA)

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U.S. Said to Ask BofA for More Than $13 Billion Over RMBS-link

http://www.bloomberg.com/news/2014-04-24/u-s-said-to-ask-bofa-for-more-than-13-billion-over-rmbs.html?cmpid=yhoo

U.S. prosecutors are seeking more than $13 billion from Bank of America Corp. to resolve federal and state probes into the lender’s sale of bonds backed by home loans in the run-up to the 2008 financial crisis, according to people familiar with the matter.

The settlement would come on top of the $9.5 billion the bank agreed last month to pay to resolve Federal Housing Finance Agency claims, said two people who asked not to be named because the negotiations are private. An agreement could come within the next two months, the people said.

If the Justice Department gets its way, the case against Bank of America will eclipse JPMorgan Chase & Co.’s record $13 billion global settlement over similar issues in November. That settlement, which included a $4 billion agreement with the FHFA, encompassed loans JPMorgan took over with its purchases of Washington Mutual Inc. and Bear Stearns Cos.

Bank of America, the second-biggest U.S. lender, is among at least eight banks under investigation by the Justice Department and state attorneys general for misleading investors about the quality of bonds backed by residential mortgages amid a drop in housing prices. Many of the loans in question were inherited by Bank of America when it purchased subprime-lender Countrywide Financial Corp. and Merrill Lynch & Co., the people said.

Bank of America, based in Charlotte, North Carolina, hasn’t specified how much money it has set aside for the case. The bank said April 16 that it increased reserves for mortgage-related matters by $2.4 billion.

Lawrence Grayson, a Bank of America spokesman, declined to comment on the negotiations. Ellen Canale, a Justice Department spokeswoman, declined immediate comment.

Task Force

President Barack Obama ordered the creation of a task force in 2012 to coordinate investigations into improper mortgage-bond underwriting by banks. Associate Attorney General Tony West has been overseeing the investigations and negotiations. Other banks under scrutiny include Citigroup Inc., Credit Suisse Group AG and Wells Fargo & Co.

The current talks are aimed at resolving civil probes by federal and state prosecutors in California, New York and New Jersey, the people said.

The negotiations are still in early stages and if an agreement isn’t reached, the government could sue the bank, according to the people. The size of any settlement would depend in part on how much the bank is willing to pay in cash versus other remedies such as mortgage write-downs or consumer relief, one of the people said.

Fannie Mae

In the FHFA settlement, Bank of America agreed to pay $6.3 billion in cash to Fannie Mae and Freddie Mac to resolve lawsuits alleging it misrepresented loans packaged into bonds that were bought by the U.S.-owned mortgage firms. The company also said it would repurchase about $3.2 billion of mortgage bonds from the firms.

JPMorgan, as part of its settlement, agreed to offer $4 billion in aid to consumers, such as loan principal forgiveness and loan modifications.

Bank of America Chief Executive Officer Brian T. Moynihan, 54, has spent more than $50 billion since the financial crisis to resolve claims related to mortgages, most tied to the 2008 purchase of Countrywide.

To contact the reporters on this story: Tom Schoenberg in Washington at [e-mail]; Hugh Son in New York at [e-mail]

To contact the editors responsible for this story: Sara Forden at [e-mail] Joshua Gallu