Servicing expenses were a drag on the bank’s profits in recent quarters as borrowers fell behind on payments. At one point in 2009, Bank of America held more than 20 percent of the mortgage-servicing market but reduced its exposure to 14.7 percent as of September, according to Inside Mortgage Finance.
Bank of America made note of the servicing rights transactions as part of a broader discussion of its settlement with Fannie Mae. The settlement calls for the bank to spend $6.7 billion to buy back about 30,000 troubled mortgages from Fannie at a discount from their original value. The bank will also make $3.6 billion in cash payments to the government-owned mortgage giant. A similar deal was struck in 2011 between the bank and Freddie Mac.
Fannie and Freddie have been saddled with billions of dollars in losses stemming from shoddy mortgages that were sold to them in the lead-up to the housing crash. The twin mortgage giants have accused Coutrywide, among others, of misrepresenting the quality of its loans in an attempt to rake in profits. Through the third quarter of 2012, Bank of America has paid $14 billion related to repurchases of soured loans.
Speaking about the settlement and servicing transactions, Bank of America chief executive Brian Moynihan said in a statement on Monday: “Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time.”
Bank of America said the settlement will reduce its pretax earnings in the fourth quarter by roughly $2.7 billion. The bank has not disclosed anticipated costs tied to the latest foreclosure settlement it reached with the Federal Reserve and Office of the Comptroller of the Currency.
Regulators are not disclosing estimated individual costs for each of the 10 banks involved in the $8.3 billion deal. The agreement will effectively end a review process of foreclosure files that was required under a 2011 enforcement action from the OCC.
Consumer advocates are criticizing the foreclosure deal as a gift to banks. They say the amount is too low and the deal allows banks to shirk their responsibility for payouts that might have cost them more.
“The capped pool of cash payments is wholly inadequate in light of the scale of the harm,” said Alys Cohen, staff attorney for the National Consumer Law Center. “If the reviews had been done right the first time, banks would have been on the hook to pay far more to homeowners.”