Bank of America 2014 Annual Report Download - page 199

Bank of America 2014 197
all outstanding litigation between FGIC and the Corporation, as
well as outstanding and potential claims by FGIC and the trustee
related to alleged representations and warranties breaches and
other claims involving certain second-lien RMBS trusts for which
FGIC provided financial guarantee insurance. The Corporation
made payments totaling $950 million under the FGIC and trust
settlements.
MBIA Settlement
On May 7, 2013, the Corporation entered into a comprehensive
settlement with MBIA Inc. and certain of its affiliates (the MBIA
Settlement) which resolved all outstanding litigation between the
parties, as well as other claims between the parties, including
outstanding and potential claims from MBIA related to alleged
representations and warranties breaches and other claims
involving certain first- and second-lien RMBS trusts for which MBIA
provided financial guarantee insurance, certain of which claims
were the subject of litigation. At the time of the settlement, the
mortgages (first- and second-lien) in RMBS trusts covered by the
MBIA Settlement had an original principal balance of $54.8 billion
and an unpaid principal balance of $19.1 billion.
Under the MBIA Settlement, all pending litigation between the
parties was dismissed and each party received a global release
of those claims. The Corporation made a settlement payment to
MBIA of $1.6 billion in cash and transferred to MBIA approximately
$95 million in fair market value of notes issued by MBIA and
previously held by the Corporation. In addition, MBIA issued to the
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 repaid and terminated.
The parties also terminated various CDS transactions entered
into between the Corporation and an 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. 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 covered 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.
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 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.