Bank of America 2013 Annual Report Download - page 207

Bank of America 2013 205
Corporation warrants to purchase up to approximately 4.9 percent
of MBIA’s currently outstanding common stock, at an exercise price
of $9.59 per share, which may be exercised at any time prior to
May 2018. In addition, the Corporation provided a senior secured
$500 million credit facility to an affiliate of MBIA, which has since
been closed.
The parties also terminated various CDS transactions entered
into between the Corporation and a MBIA-affiliate, LaCrosse
Financial Products, LLC, and guaranteed by MBIA, which
constituted all of the outstanding CDS protection agreements
purchased by the Corporation from MBIA on commercial mortgage-
backed securities (CMBS). Collectively, those CDS transactions
had a notional amount of $7.4 billion and a fair value of $813
million as of March 31, 2013. The parties also terminated certain
other trades in order to close out positions between the parties.
The termination of these trades did not have a material impact on
the Corporation’s financial statements.
Syncora Settlement
On July 17, 2012, the Corporation entered into a settlement with
a monoline insurer, Syncora Guarantee Inc. and Syncora Holdings,
Ltd. (Syncora), to resolve all of Syncora’s outstanding and potential
claims related to alleged representations and warranties breaches
involving eight first- and six second-lien private-label securitization
trusts where it provided financial guarantee insurance. The
settlement covers private-label securitization trusts that had an
original principal balance of first-lien mortgages of approximately
$9.6 billion and second-lien mortgages of approximately $7.7
billion. The settlement provided for a cash payment of $375 million
to Syncora and other transactions to terminate certain other
relationships among the parties.
Assured Guaranty Settlement
On April 14, 2011, the Corporation, including its Countrywide
affiliates, entered into a settlement with Assured Guaranty to
resolve all of Assured Guaranty’s outstanding and potential
repurchase claims related to alleged representations and
warranties breaches involving 21 first- and eight second-lien RMBS
trusts where Assured Guaranty provided financial guarantee
insurance. The settlement resolves historical loan servicing issues
and other potential liabilities with respect to those trusts. The
settlement covers RMBS trusts that had an original principal
balance of approximately $35.8 billion and total unpaid principal
balance of approximately $20.2 billion as of April 14, 2011. The
settlement provided for cash payments totaling approximately
$1.1 billion to Assured Guaranty, a loss-sharing reinsurance
arrangement with an expected value of approximately $470 million
at the time of the settlement and other terms, including termination
of certain derivative contracts.
Settlement with the Bank of New York Mellon, as Trustee
On June 28, 2011, the Corporation, BAC Home Loans Servicing,
LP (BAC HLS, which was subsequently merged with and into BANA
in July 2011), and its Countrywide affiliates entered into a
settlement agreement with Bank of New York Mellon (BNY Mellon)
as trustee (the Trustee), to resolve all outstanding and potential
claims related to alleged representations and warranties breaches
(including repurchase claims), substantially all historical loan
servicing claims and certain other historical claims with respect
to 525 Countrywide first-lien and five second-lien non-GSE
residential mortgage-backed securitization trusts (the Covered
Trusts) containing loans principally originated between 2004 and
2008 for which BNY Mellon acts as trustee or indenture trustee
(BNY Mellon Settlement). The Covered Trusts had an original
principal balance of approximately $424 billion, of which $409
billion was originated between 2004 and 2008, and total
outstanding principal and unpaid principal balance of loans that
had defaulted (collectively unpaid principal balance) of
approximately $220 billion at June 28, 2011, of which $217 billion
was originated between 2004 and 2008. The BNY Mellon
Settlement is supported by a group of 22 institutional investors
(the Investor Group) and is subject to final court approval and
certain other conditions.
The BNY Mellon Settlement provides for a cash payment of
$8.5 billion (the Settlement Payment) to the Trustee for distribution
to the Covered Trusts after final court approval of the BNY Mellon
Settlement. In addition to the Settlement Payment, the Corporation
is obligated to pay attorneys’ fees and costs to the Investor Group’s
counsel as well as all fees and expenses incurred by the Trustee
related to obtaining final court approval of the BNY Mellon
Settlement and certain tax rulings.
The BNY Mellon Settlement does not cover a small number of
Countrywide-issued first-lien non-GSE RMBS transactions with
loans originated principally between 2004 and 2008 for various
reasons, including for example, six Countrywide-issued first-lien
non-GSE RMBS transactions in which BNY Mellon is not the
trustee. The BNY Mellon Settlement also does not cover
Countrywide-issued second-lien securitization transactions in
which a monoline insurer or other financial guarantor provides
financial guaranty insurance. In addition, because the settlement
is with the Trustee on behalf of the Covered Trusts and releases
rights under the governing agreements for the Covered Trusts, the
settlement does not release investors’ securities law or fraud
claims based upon disclosures made in connection with their
decision to purchase, sell or hold securities issued by the Covered
Trusts. To date, various investors are pursuing securities law or
fraud claims related to one or more of the Covered Trusts. The
Corporation is not able to determine whether any additional
securities law or fraud claims will be made by investors in the
Covered Trusts. For information about mortgage-related securities
law or fraud claims, see Litigation and Regulatory Matters in Note
12 – Commitments and Contingencies. For those Covered Trusts
where a monoline insurer or other financial guarantor has an
independent right to assert repurchase claims directly, the BNY
Mellon Settlement does not release such insurer’s or guarantor’s
repurchase claims.
Under an order entered by the court in connection with the BNY
Mellon Settlement, potentially interested persons had the
opportunity to give notice of intent to object to the settlement
(including on the basis that more information was needed) until
August 30, 2011. Approximately 44 groups or entities appeared
prior to the deadline. Certain of these groups or entities filed
notices of intent to object, made motions to intervene, or both.
On May 3, 2013, pursuant to the court-ordered schedule for filing
objections, 13 groups or entities filed five briefs formally objecting
to the BNY Mellon Settlement. Several former intervenor-objectors
either expressly withdrew from the proceeding or elected not to
file an objection at the objection deadline, including the Attorneys
General of New York and Delaware, the Federal Deposit Insurance
Corporation (FDIC) and the Federal Housing Finance Agency (FHFA).
After additional withdrawals, 11 objectors remained in the
proceeding at the conclusion of the court approval hearing.