The Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, today announced it has reached a settlement in cases involving Bank of America, Countrywide Financial, Merrill Lynch, and certain named individuals totaling approximately $5.83 billion. Bank of America Corporation owns Countrywide and Merrill Lynch.
The cases alleged violations of federal and state securities laws in connection with private-label, residential mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac between 2005 and 2007.
Allegations of common law fraud were made in the Countrywide and Merrill Lynch cases.
The Nine Elements of Common Law Fraud In the United States; common law generally identifies nine elements needed to establish fraud: (1) a representation of fact; (2) its falsity; (3) its materiality; (4) the representer’s knowledge of its falsity or ignorance of its truth; (5) the representer’s intent that it should be acted upon by the person in the manner reasonably contemplated; (6) the injured party’s ignorance of its falsity; (7) the injured party’s reliance on its truth; (8) the injured party’s right to rely thereon; and (9) the injured party’s consequent and proximate injury.
The Agreement provides for an aggregate payment of approximately $9.33 billion by Bank of America that includes the litigation resolution as well as a purchase of securities by Bank of America from Fannie Mae and Freddie Mac.
This announcement is expected to cut BAC's profits by $3.7 billion and is expected to negatively impact BAC's first quarter 2014 profits.
“FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement of these cases. This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit. Many potential homeowners will benefit from increasing certainty in the marketplace and that is very much the direction we should be taking,” said FHFA Director Melvin L. Watt.
Of the 18 PLS suits filed in 2011, FHFA now has claims remaining in seven suits against various institutions and remains committed to satisfactory resolution of these pending actions.
The settlement agreement regarding private label securities claims between FHFA andBank of America involves the following cases: Federal Housing Finance Agency v. Bank of America Corp., et al., No. 11 Civ. 6195 (DLC) (S.D.N.Y.); Federal Housing Finance Agency v. Countrywide Financial Corp., et al., No. 12 Civ. 1059 (MRP) (C.D. Cal.); Federal Housing Finance Agency v. Merrill Lynch & Co., Inc., et al., No. 11 Civ. 6202 (DLC) (S.D.N.Y.); as well as one Merrill Lynch security in Federal Housing Finance Agency v. First Horizon National Corp., No. 11 Civ. 6193 (DLC) (S.D.N.Y.).