Bank of America Corp has agreed to settle Freddie Mac and Fannie Mae's demand that it buy back faulty loans which equates to billions of dollars and may set an example for similar U.S. lenders.
Monday Bank of America announced it would settle claims on over $4.1 billion in loans from the companies Countrywide Financial Corp. unit.
This sent the KBW Bank Index including 24 stocks up 2.3 percent reaching its highest level since May.
The negotiation will likely lead to other lenders buying back loans that were allegedly incomplete or had bad information about home values and other data.
“It’s unlikely GSE claims could spiral out of control from here,” said Chris Kotowski, a managing director of research for Oppenheimer & Co. in New York.
“I think that’s a positive broadly for the group,” because it eliminates the risk that the liability would be much higher."
Bank of America is the biggest U.S. lender in terms of assets. The government backed entities were pressuring lenders to make good on their representations and warranties were they vouch for their accuracy in loan documents.
“You have a template that you can go use to try to clear up these liabilities,” said Paul Miller, analyst for Arlington, Virginia-based FBR Capital Markets.
“Countrywide had the worst mess, so you can probably settle for something less than the BofA settlement.”
Tags: Freddie Mac, KBW Bank Index, Fannie Mae, Countrywide Financial Corp., Bank of America
