Bank of America Sees $2 Billion Charge on Home Loans

Bank of America Corp., the biggest U.S. bank by assets, resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6 billion to settle claims that it sold loans based on faulty information.

The lender advanced 4.6 percent in early trading after saying fourth-quarter results would include a $2 billion impairment charge and a $3 billion provision.

Mortgage buyers including McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae are trying to force lenders to buy back loans that may have been made with incorrect data on income and home values. Before the settlement announced today, Bank of America faced $12.9 billion in unresolved putback demands on soured mortgages, with about half related to government-sponsored entities, according to an Oct. 19 presentation to investors. The company said in October it had reserved $4.4 billion for costs related to the problem.

“Bank of America believes that it has addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs,” the Charlotte, North Carolina-based company said in a statement today.

Shares Rise

Bank of America rose to $13.96 at 8:06 a.m. in New York trading from $13.34 at the close on the New York Stock Exchange on Dec. 31. They dropped 11 percent last year, the biggest decline among the top 10 U.S. banks.

The agreement provides for a $1.28 billion cash payment to Freddie Mac to resolve claims arising from 787,000 loans sold through 2008 by “legacy” Countrywide Financial Corp., Bank of America said in the statement. Bank of America also agreed to pay $1.34 billion in cash to Fannie Mae, after applying “certain credits” to an agreed-upon settlement of $1.52 billion.

“These actions resolve substantial legacy issues in the best interest of our shareholders,” Chief Executive Officer Brian Moynihan said in the statement.

The agreement with Freddie Mac involves loans with total unpaid principal of $127 billion, and the Fannie Mae agreement includes unpaid principal of $2.7 billion.

The agreements don’t cover loan servicing obligations, other contractual obligations or loans contained in private label securitizations.

“This significant agreement with Bank of America is a fair and responsible resolution of these outstanding claims,” Fannie Mae CEO Michael Williams said in a statement.