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(Adds details about settlement)
By Margaret Chadbourn and Aruna Viswanatha
WASHINGTON, March 26 (Reuters) - Bank of America agreed to pay $9.3 billion to settle claims that it sold FannieMae and Freddie Mac faulty mortgage bonds,helping the bank to end one of the largest legal headaches itstill faced from the financial crisis.
The settlement, announced on Wednesday, includes $6.3billion in cash and the rest in securities that Bank of Americawill purchase from the two housing finance entities.
The second-largest U.S. bank by assets said it had nowresolved around 88 percent of its total exposure to securitiesat issue in the mortgage bond litigation it has faced.
Bank of America's first-quarter profits could take asubstantial hit from the deal. The bank said the settlement wasexpected to reduce first-quarter income by about 21 cents a share, or three-quarters of what analysts surveyed by ThomsonReuters I/B/E/S forecasted the bank to earn before thesettlement was announced.
Also on Wednesday, Bank of America and its former chiefexecutive, Kenneth Lewis, settled a lawsuit by New York'sattorney general that alleged it misled investors about mountinglosses at Merrill Lynch & Co, which the bank agreed to acquireat the height of the financial crisis.
Lewis, who resigned in 2009, agreed to pay $10 million andbe barred for three years from serving as an officer or directorof a public company. Bank of America agreed to pay $15 millionand adopt corporate reforms. Both payments will cover the costsof New York's investigation, and neither Lewis nor Bank ofAmerica is admitting wrongdoing or paying damages.
Bank of America still faces a lawsuit from the U.S. JusticeDepartment and several other probes by the DOJ and states overmortgage-backed securities it sold during the housing boom. OnWednesday, the bank said it has had "preliminary discussions" toresolve the matters.
'REASONABLE AND PRUDENT'
The new settlement with Fannie Mae and Freddie Mac resolveslawsuits filed against Bank of America, Merrill Lynch, andCountrywide, the subprime mortgage lender it bought at theheight of the financial crisis.
The regulator of Fannie Mae and Freddie Mac, the FederalHousing Finance Agency, had accused the bank of misrepresentingthe quality of loans underlying residential mortgage-backedsecurities purchased by the two mortgage finance companiesbetween 2005 and 2007.
The two taxpayer-owned firms have operated underconservatorship since 2008, when they were seized by regulatorsafter losses on subprime loans pushed them toward insolvency.
It was the 10th settlement that the FHFA has reached inlitigation that began in 2011 when it filed 18 lawsuits overabout $200 billion in mortgage-backed securities, an investmentproduct at the center of the recent global financial crisis.
Many of the settlements were reached after a series of courtrulings that went against the banks.
"FHFA has acted under its statutory mandate to recoverlosses incurred by the companies and American taxpayers and hasconcluded that this resolution represents a reasonable andprudent settlement," FHFA Director Mel Watt said in a statement.
So far, the FHFA has recovered more than $10 billion frombanks by asserting similar claims over mortgage securities.Seven other banks still need to resolve similar lawsuits.
Merrill Lynch would have been the first of the banks withlegal disputes still pending to face trial, with a date of June2.
U.S. District Judge Denise Cote has scheduled Septembertrial dates for Goldman Sachs Group Inc and HSBC Holdingsplc. (Reporting by Margaret Chadbourn and Aruna Viswanatha inWashington and Nate Raymond and Peter Rudegeair in New York;Editing by Jonathan Oatis, Lisa Shumaker and Peter Cooney)
