Bank of America's New Year's Detox

I can't decide if it's more like a full-body detox or somehow akin to a new year's resolution —the part where you recognize what's wrong in your life and try to fix it, no matter how painful, or, in this case, expensive it may be.

A Bank of America branch.
Nell Redmond
A Bank of America branch.

This first Monday of the year, Bank of America announced it paidFreddie Mac $1.28 billion, to extinguish, "all outstanding and potential mortgage repurchase and make-whole claims arising out of any alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Freddie Mac through 2008." That's about 787,000 loans worth $127 in unpaid principal balance. It also paid Fannie Mae $1.52 billion (or $1.34 billion after figuring in some "credits") for similar issues on close to 18,000 legacy Countrywide loans sold to Fannie Mae worth about $4 billion in unpaid principal balance.

"The agreements with Freddie Mac and Fannie Mae do not cover loan servicing obligations, other contractual obligations or loans contained in private label securitizations," continues the release.

Bank of America's CEO, Brian Moynihan writes that these settlements are all part of the bank's continuing goals to "put these issues behind us." Read: Cleanse. This as they "focus on serving customers and clients, and continue to help distressed homeowners facing difficult times." Read: Resolve.

The GSE's overseer, the FHFA, put out a release approving these settlements as well as another one with Ally Financial that was done a few weeks earlier. "Combined, the agreements provide $3.3 billion in recovery to the Enterprises and, thereby, to taxpayers," writes FHFA Acting Director Edward J. DeMarco in a release.

DeMarco has been hard-charging against the banks, issuing 64 subpoenas to several institutions last summer, seeking documents related to private-label mortgage-backed securities in which the GSE's had invested. He is also supposed to be replaced by North Carolina banking commissioner Joseph Smith, but Senate Republicans may be blocking the nomination (don't have space to get into that here, but it's kind of related).

So all this feels very cleansing, and the markets apparently see it that way as well. Bank of America is rallying today. As my CNBC colleague Mary Thompson reported, analysts "like the news because it puts a number on the GSE's liabilities." She also quotes analyst Paul Miller of FBR Capital Markets: "It means it takes one of the big overhangs away from the stock even though you have the private label discussions out there, and also you have the robosigning and all of that."

Which is why it ain't over 'til it's over.

Private label investors are still going after the big banks, and, as Thompson reports, B of A's CFO Charles Noski admits that another steep dip in home prices could require "additional provisions" with the GSEs.

Still, investment bank KBW decided to lower its estimate of banking industry losses over loan buy backs from $57 billion to $33 billion. KBW figured that the GSEs agreed to a very low percentage of the unpaid principal balances, so banks would lose 41 percent less, if this is a "reasonable template for potential losses related to GSE loans for the industry as a whole." They, too, continue to be concerned about the private label MBS.

And with that I wish my fellow bloggers and followers a very Happy New Year, and very strong stomach to weather what is likely still to come.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick