On Monday financial services giant Bank of America Corp. (BAC) reached a $10.3 billion settlement agreement with government-backed mortgage company Fannie Mae to resolve a dispute over questionable home loans sold during the housing bubble.
Bank of America will pay Fannie Mae $3.55 billion dollars in cash in the deal while also repurchasing $6.75 billion in questionable mortgages that will most likely produce losses. The loans covered by the settlement had an original value of $1.4 trillion.
These questionable mortgages were sold to Fannie Mae by Countrywide Financial as complicated and suspicious mortgaged-backed securities between 2000 and 2008. These securities were then guaranteed by the government-backed mortgage company.
Countrywide Financial was purchased by Bank of America in 2008. The purchase of bad home loans by Fannie Mae led to massive losses and a subsequent bailout and government takeover in 2008 to keep it functioning as a major source of home loans.
This is not the first time that Bank of America has had to pay for various transcretions prior to the housing bubble and financial crisis. In 2010 Bank of America repurchased $2.87 billion worth of bad loans sold by Countrywide Financial to Freddie Mac. Many viewed this deal as being too light on Bank of America. In 2011 the company paid a $335 million fine to settle complaints about discriminatory lending practices at Countrywide.
Many analysts now see this settlement as a positive for Bank of America and its shareholders as it gives some clarity to the company despite the shady practices.
Bank of America shares were up 13 cents, or +1.07%, during premarket trading on Monday. The stock is up +95.95% over the past year.
The Bottom Line
Shares of Bank of America (BAC) have a .33% dividend yield, based on Friday’s closing stock price of $12.11. The stock has technical support in the $10.50-$11.00 price area. If the shares can firm up, we see overhead resistance around the $13.50 price level.
Bank of America Corp (BAC) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.1 out of 5 stars.
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