Bank of America may have to pay $5 billion to $8 billion to settle federal claims tied to faulty mortgages after a rival lender's deal set "a relatively high bar," Fitch Ratings said.
Bank of America had about $57 billion of mortgage-backed securities cited by a Federal Housing Finance Agency lawsuit, compared with about $33 billion in a case involving JPMorgan Chase that was settled last week for $4 billion, Fitch analysts wrote in a note today.
The FHFA, regulator for Fannie Mae and Freddie Mac, demanded at least $6 billion from Bank of America to settle claims the lender sold faulty mortgage bonds to the U.S.-backed finance firms, a person with knowledge of the matter said this month. The regulator sued Bank of America and 17 other companies two years ago to recoup losses absorbed by taxpayers after the government bailed out Fannie Mae and Freddie Mac in 2008.
The size of settlements so far "reflects the more aggressive stance taken by the federal government in resolving litigation against the banks involving precrisis matters," the Fitch analysts wrote. Sanford C. Bernstein & Co. analysts estimated on Oct. 10 before the JPMorgan deal was announced that suits from the FHFA and insurer American International Group Inc. would cost Bank of America about $4 billion.
Lenders facing FHFA claims may have to boost litigation reserves based upon the JPMorgan deal, Fitch said. Settlement expenses probably won't affect credit grades at the Charlotte, North Carolina-based lender, Fitch said. Larry DiRita, a Bank of America spokesman, declined to comment on Fitch's note.
Bank of America and firms it acquired created more than a quarter of the bonds targeted by the FHFA, the most of any defendant, followed by New York-based JPMorgan. UBS AG, Switzerland's biggest bank, agreed to an $885 million settlement in July over $6.3 billion of mortgage-backed securities.
JPMorgan, the largest U.S. lender by assets, agreed to pay $4 billion to end the FHFA's lawsuit accusing the bank of selling Fannie Mae and Freddie Mac faulty mortgage bonds, plus $1.1 billion for claims that it sold Fannie and Freddie defective loans that they packaged into their own securities. Citigroup Inc. and General Electric Co. also reached settlements this year.