United States: Bank of America has announced agreements with the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) to resolve repurchase claims involving certain residential mortgage loans sold to them by entities related to Countrywide Financial Corporation (legacy Countrywide).

Bank of America has also announced that in the fourth quarter of 2010 it expects to take a provision of approximately $3 billion related to repurchase obligations for residential mortgage loans sold by Bank of America affiliates directly to Freddie Mac and Fannie Mae (collectively, the Government Sponsored Entities or GSEs). This provision results from both the GSE agreements referred to above and adjustments to the representations and warranties liability for other loans sold directly to the GSEs and not covered by these agreements. The loans not covered by the agreements include both legacy Countrywide loans and loans originated on other legacy platforms.

Through this provision, Bank of America believes that it has addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs. The calculation of the provision incorporates historical experience with the GSEs and certain assumptions regarding economic conditions, home prices and other matters, and future provisions for representations and warranties may be affected if the actual results are different.

“These actions resolve substantial legacy issues in the best interest of our shareholders,” said Bank of America President and Chief Executive Officer Brian Moynihan. “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 with Freddie Mac extinguishes 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 (787,000 loans with a total unpaid principal balance of $127 billion), subject to certain exceptions, which Bank of America does not believe will be material. The agreement provides for a cash payment to Freddie Mac of $1.28 billion, which was made on December 31, 2010.

The agreement with Fannie Mae substantially resolves the existing pipeline of repurchase and make-whole claims outstanding as of September 20, 2010 arising out of alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Fannie Mae. The agreement provides for a net cash payment to Fannie Mae of $1.34 billion, which was made on December 31, 2010, after applying certain credits to the agreed-upon amount of $1.52 billion.

The Fannie Mae agreement extinguishes all outstanding and potential selling representations and warranties claims on 12,045 legacy Countrywide loans (approximately $2.7 billion of unpaid principal balance). The agreement also resolves specific outstanding repurchase or make-whole claims, or extends the cure period for missing documentation-related claims, on an additional 5,760 legacy Countrywide loans (approximately $1.3 billion of 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.

The agreements with Freddie Mac and Fannie Mae are the latest in a series of actions Bank of America has taken to respond to the housing crisis since 2008. These include discontinuing Countrywide subprime, pay-option ARM and prime-quality two-year hybrid ARM loans, launching one of the industry’s first streamlined loan modification programs, introducing the Clarity Commitment to simplify and summarize loan terms and closing costs, and completing more than 750,000 loan modifications for distressed customers since the beginning of 2008.