Bank of America Near $8.5 Billion Settlement Over Mortgages

Investor complaints against Bank of America over mortgages, which have bedeviled the bank since last fall, appear to be close to a resolution as the bank is on the verge of paying $8.5 billion to a group of private investors, according to people familiar with the matter.

Bank of America branch, New York City.
Oliver Quillia for
Bank of America branch, New York City.

Such a settlement would put to rest charges that the bank violated its servicing agreements with home-loan buyers on mortgages valued at tens of billions of dollars during the housing boom. It would also end one of the more awkward chapters in Bank of America's battle with dissatisfied mortgage holders and buyers of mortgage-backed securities.

The settlement could be announced publicly as early as tomorrow, these people say.

The case began last fall with a warning notice from a prominent group of mortgage investors, including the New York Federal Reserve Bank, Pacific Investment Management, and BlackRock, who charged Bank of America with violating its obligations on at least $47 billion worth of home loans. The matter has since grown to encompass a larger number of mortgages, said one of the people familiar with the matter.

If the settlement is finalized and approved quickly, it will likely result in Bank of America taking a write-down during the second quarter, said one of the people familiar with the matter.

Bank of America has been dogged all year by concerns about its many legal issues — a topic that consumes multiple pages in the bank’s most recent annual report.

As recently as January, Bank of America’s chief financial officer estimated losses of no more than $7 billion to $10 billion from so-called put-backs, or private-label mortgages like the ones in question in the pending settlement.

But a more recent estimate from Credit Agricole Securities financials analyst Mike Mayo pegged potential losses from put-backs at $7 billion, suggesting that the market may have been expecting a lower number.

Bank of America shares are down 19% so far this year, and 7% just in the past month, having closed at $10.82 on Tuesday. Shares jumped in after-hours trading. Click here to get the latest quote.