Bank of America moves to avoid penalties in National Mortgage Settlement

In February 2012 the Attorneys General of 49 states came to an agreement with the federal government to settle foreclosure related activities with five major lenders, Bank of America, JPMorgan Chase, Wells Fargo, Citi and Ally/GMAC.

Known as The National Mortgage Settlement, the agreement will benefit borrowers holding loans with the named lenders by reducing principal balances and modifying existing loans.

Bank of America recently announced a side deal associated with the settlement that may help them avoid up to $850 Million on penalties associated with the settlement terms.

By making broader and deeper cuts than the other lenders named in the settlement, Bank of America hopes to avoid $350 Million in penalties tied to the settlement agreement. They also hope to avoid one half of a separate $1 Billion penalty related to a settlement of false claims filed on loans backed by the Federal Housing Administration which they can avoid only if they accommodate certain guidelines and meet specific targets.

Although obtained by Bank of America and packaged into residential mortgage-backed securities, it is actually Countrywide Home Loans who will write down most of these loans in 2008.  Bank of America is also expected to reduce balances on loans within its own portfolio as well.

Not everyone is excited about Bank of America’s announcement.  Many are concerned that the costs associated with the National Mortgage Settlement will fall onto the shoulders of investors as banks such as Bank of America modify many of the loans tied to residential mortgage-backed securities (RMBS) thus impacting the returns on the securities in question.

To date, details of the settlement are likely to remain unclear until details emerge once the settlement is filed in court and individual borrowers will not know if they qualify until they are contacted by their lender.

You will find regular updates to this new Bank of America announcement and details on the National Mortgage Settlement at www.pertria.com.  You may also call Andrew Arild at 408.357.7767 for further information.