Bank of America Corp. expects to take a provision of about $3 billion in the fourth quarter to buy back bad loans from Freddie Mac and Fannie Mae that were issued by its troubled Countrywide Financial unit.
The move represents the latest effort by the banking giant, which acquired mortgage-originator Countrywide in 2008, to respond to the housing crisis. Countrywide's mortgages turned into some of the worst mortgages issued during the crisis and, ever since Bank of America bought the lender, the bank has had to handle growing loan losses.
Bank of America shares climbed 5.9% to $14.13 in premarket trading. The stock slid 11% last year.
Bank of America's home loans and insurance business is expected to post a $2 billion write down in the quarter, and the bank said the charge will have no impact on its Tier 1 or tangible equity ratios.
"These actions resolve substantial legacy issues in the best interest of our shareholders," Chief Executive Brian Moynihan said. "Our goals remain the same: put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times."
The agreement includes a cash payment of $1.28 billion to Freddie and $1.52 billion to Fannie, both of which were made Friday. Executives from both companies said the agreement is in the best interests of all parties.
Last week, Allstate Corp. sued Countrywide over $700 million in residential mortgage-backed securities that the insurer had invested in. The suit contains similar allegations other investors have raised with mortgage creators, namely that lax underwriting standards are to blame for the collapse of the investment vehicles.
