Here’s a story that’s starting to sound weirdly familiar: Bank of America Corp. just agreed to pay $9.5 billion to settle U.S. claims linked to mortgages sold to Fannie Mae and Freddie Mac from 2005 to 2007. The deal, which roughly $6.3 billion in cash to end legal claims and an agreement to buy back $3.2 billion worth of mortgage-backed bonds, might seem like a landmark … if it was not so similar to multi-billion dollar agreements Bank of America signed in 2011 and 2013.
The 2013 deal, signed that January, also involved paying $3.6 billion in cash and buying back mortgages with billions of dollars in outstanding principal. At the time, Bank of America CEO Brian T. Moynihan called the 2013 agreements “a significant step in resolving our remaining legacy mortgage issues.” One analyst told Bloomberg that the deal would let Bank of America put its Fannie and Freddie issues behind it.
Apparently not. But there’s more. The current deal doesn’t just come on top of the 2013 settlement. It also comes on top of a $3 billion deal with Fannie and Freddie in 2011. Not to mention an $8.5 billion settlement reached with mortgage bond investors the same year. The consensus then was also that Bank of America seemed to be climbing out of the mortgage crisis pit. “The good news for BofA is that it seems to be putting a significant chunk of its Countrywide problems behind it,” Forbes wrote. Sound familiar?
Bank of America said in a statement that this deal resolves claims over 88 percent of its disputed mortgage-backed securities. Bloomberg’s Hugh Son, who knows as much about Bank of America litigation as any reporter, explained to me that while last year’s deal involved whole mortgages bought by Fannie and Freddie, this one involves mortgage-backed bonds, a separate category of claims. It’s an important legal distinction, but it still has to leave non-experts wondering just how many more categories of liabilities will necessitate multi-billion dollar settlements.
When Bank of America bought Countrywide Financial Corp., and later Merrill Lynch & Co., it was clear that the bank was assuming indefinite and enormous liabilities. Now it’s demonstrating just how deep bottomless is. Maybe the worst part is that even if Bank of America gets through the settlements with Fannie, Freddie, and various bond investors, there are still many billions of dollars in potential liability over foreclosures and loan modifications that are just getting uncovered.