NEW YORK--(BUSINESS WIRE)-- On Jan. 3, 2011, Bank of America Corporation (BAC) announced agreements with government sponsored enterprises (GSEs), Freddie Mac and Fannie Mae, on rep and warranty claims associated with the risk of repurchasing problem residential mortgages. Fitch believes the agreements have resulted in far greater clarity regarding BAC's ultimate rep and warranty losses on GSE exposures. The agreement with Freddie Mac encompasses both existing and potential claims related to mortgages sold by Countrywide, which was acquired by BAC in 2008, while the agreement with Fannie Mae covers substantially all of the existing pipeline of claims outstanding as of Sept. 20, 2010.

With the signing of these agreements, it appears that total current losses related to GSE rep and warranty claims will likely be within the 'mild loss scenario' of Fitch's range of expectations as articulated in its commentary: 'Large U.S. Bank Ratings Vulnerable to GSE Mortgage Loan Repurchases', dated Aug. 18, 2010. Through year-end 2010, charges associated with mortgage repurchases from the GSEs have totaled $6.3 billion, consisting of the current settlement payments of $2.8 billion and cumulative losses of $3.5 billion. BAC is taking a $3 billion provision in fourth quarter 2010 to cover the agreements as well as potential losses associated with future claims from Fannie Mae and non-Countrywide-related claims from GSEs.

Uncertainty regarding rep and warranty losses had been a key concern in Fitch's fundamental rating assessment of BAC as measured by the Individual rating of 'C' and unsupported Issuer Default Rating (IDR) of 'BBB+/F2'. (BAC's current IDR remains at its support floor of 'A+/F1+'. The IDR rating was placed on Rating Watch Negative on Oct. 22, 2010). Fitch notes, however, that BAC continues to face potential future repurchase requests from Fannie Mae as well as non-GSE exposures associated with private label securities, whole loans, and insurers. Potential losses related to these sources remain uncertain and ultimate resolution of non-GSE claims could be protracted. Nonetheless, Fitch believes the recent GSE agreement represents a large, favorable step forward for BAC in dealing with the uncertainty of mortgage repurchase risk.

Additional information available at 'www.fitchratings.com'

Related Research:

--'2011 Outlook: U.S. Banks' (Jan. 4, 2011);

--'Fitch Places Bank of America's IDRs on Rating Watch Negative' (Oct. 22, 2010);

--'Fitch: Large U.S. Bank Ratings Vulnerable to GSE Mortgage Loan Repurchases' (Aug. 18, 2010).

Applicable Criteria and Related Research:

2011 Outlook: U.S. Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=594905

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KEYWORDS:   United States  North America  New York

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