‘Real Housewives’ Teresa Giudice, husband Joe Giudice indict…
‘Real Housewives’ Teresa Giudice, husband Joe Giudice indict…
The only solace for Isabel Santos as she spends her evenings huddled over stacks of yellowed foreclosure notices is that her parents are not alive to watch their ranch-style house in Pleasant Hill, Calif., slipping away.
Santos, 61, along with a growing number of baby boomers, is confronting a bitter inheritance: The same loans that were supposed to help their elderly parents stay in their houses are now pushing their children out.
“My dad had nothing when he came here from Cuba and worked so hard to buy this house,” Santos said, her voice quivering.
Similar scenes are being played out throughout an aging America, where the children of elderly borrowers are learning that their parents’ reverse mortgages are now threatening their own inheritances.
Reverse mortgages allow homeowners 62 and older to borrow against the value of their homes that need not be paid back until they move out or die. They’ve long posed pitfalls for older borrowers.
Now, many like Santos are discovering that reverse mortgages can also sting the heirs.
Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount.
Instead, reverse-mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full, according to interviews with more than four dozen housing counselors, state regulators and 25 families whose parents took out reverse mortgages.
Some lenders are moving to foreclose just weeks after the borrower dies, many families say. The complaints are echoed by borrowers across the country, according to a review of federal and state court lawsuits against reverse-mortgage lenders.
Others say that they don’t get that far. Soon after their parents die, the heirs say they are plunged into a bureaucratic maze as they try to get details from lenders about how to keep their family homes.
Santos’ mother, Yolanda, began borrowing money against the equity in her home in 2009, when she was in her 80s. Santos thought the arrangement would defray her mother’s living and medical expenses by providing cash upfront.
It was only after her mother died two years later, with an outstanding reverse-mortgage balance of about $308,000, that Santos learned the loan had in fact jeopardized her parents’ nest egg. The financial company that extended the loan, Reverse Mortgage Solutions, moved to foreclose unless she paid the full balance.
What Santos did not know at first was that surviving family members were supposed to be offered the choice to settle the reverse mortgage for a percentage of the full amount. In her case, that lesser amount offered to heirs is 95 percent of the home’s current value, or about $237,000, according to one estimate.
Any shortfall if the home sells for less than the debt is covered by a federal insurance fund, which all reverse-mortgage borrowers are required to pay into each month.
After being contacted by The New York Times, the lender offered Santos the option to buy the home for 95 percent of the current value. The problem is the home is now worth more than it was three years ago when Santos’ mother died.
Lora Bitting, 61, said she was crippled by sadness after her father, Jesse, who took out a reverse mortgage on his Muskogee, Okla., home, died in December. Still, Bitting contacted the lender a month later to begin the process of paying off the $194,254.34 debt, according to a copy of the letter reviewed by The Times.
But because of delays in uploading her letter and a missing trust document, the lender ultimately sped up foreclosure proceedings on her father’s home in February.
There is no data on how many heirs are facing foreclosure because of reverse mortgages. But interviews with elder-care advocates, housing counselors and heirs, suggest it is a growing problem already affecting an estimated tens of thousands of.
And it is one that threatens to ensnare future generations, as older Americans increasingly turn to their homes for cash.
Already, the combined debt of Americans ages 65 to 74 is rising faster than that of any other age group, according to the Federal Reserve. And approximately 13 percent of the reverse mortgages outstanding are underwater, according to an estimate from New View Advisors, a New York consulting firm.
“It’s truly one of the thorniest issues I hear about from a growing number of attorneys,” said Diane E. Thompson, a lawyer at the National Consumer Law Center.
Lenders say they abide by federal rules, noting that their goal is to avert foreclosures, which can be costly and time-consuming. And used correctly, reverse mortgages can help older homeowners get cash to pay for retirement.
Peter H. Bell, president and chief executive of the National Reverse Mortgage Lenders Association, notes the loans are tightly regulated.
The reverse-mortgage market has fallen since the financial crisis. The number of such loans fell to 51,000 in 2012 from a peak of about 115,000 in 2007.
At the same time, the rate of default rose to approximately 9.4 percent of loans in 2012, up from 2 percent a decade earlier, according to the Consumer Financial Protection Bureau.
As the market foundered, large banks left, replaced by a fleet of smaller lenders and brokers.
For heirs, the problem with reverse mortgages often centers on the little-known set of federal regulations administered by the Department of Housing and Urban Development.
A spokesman for the agency said it vetted participating reverse-mortgage firms to spot any possible violations, but did not provide a tally of those found in violation or of the participating firms that have been penalized.
The regulations apply to reverse mortgages that are insured by the Federal Housing Administration, virtually all of the market.
Lenders must offer heirs up to 30 days from when the loan becomes due to determine what they want to do with the property, and up to six months to arrange financing.
Most important, housing counselors say, is a rule that allows heirs to pay 95 percent of the current fair market value of the property — a price determined by an appraiser hired by the lenders. Bell, of the National Reverse Mortgage Lenders Association, said that lenders were strictly abiding by the 95 percent rule.
The difference offered by the 95 percent rule can be critical. After the financial crisis, when housing prices tumbled, the disparity between the current value of the home and the total balance on the mortgage often means the difference between keeping a home and losing it to foreclosure.
When Robert Campbell’s mother, Lillie, died in 2012, the outstanding loan balance was $123,773 — a sum impossible for him to pay.
But he could have cobbled together the $14,000, or 95 percent of the market value of the Chicago home when Campbell died.
The lender never informed him of that option, according to his lawyer, Kathryn Liss. It wasn’t until Campbell contacted the lawyer that he learned of an alternative.
There are others like him.
“There are hundreds of families who want to keep their homes and are simply not aware of their rights,” Jean Constantine-Davis, a senior lawyer for AARP, said.
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Does a new home loan make sense?
There are at least seven reasons to refinance a mortgage. You probably can think of the first one – to get a lower mortgage rate.
The average interest rate on an outstanding mortgage at the beginning of 2012 was 5.098 percent, according to the Bureau of Economic Analysis. But lenders today are offering rates well below that benchmark, making a refinance a no-brainer for many.
But low rates are not the only motive for refinancing a home loan nowadays. The following are good reasons to consider a new home loan.
1 REFI FOR A LOWER RATE: The No. 1 reason to refi is to get a lower mortgage rate. Despite sinking rates, a lot of people haven’t refinanced.
Many homeowners would like to refinance but can’t because they have little or no equity due to falling home values. Jim Sahnger, mortgage consultant for FBC Mortgage in Jupiter, Fla., said too many of his clients can’t refi for this reason.
“But there are people who can, and some people who get so into whatever they’re doing that they don’t pay attention to the news and don’t pay attention to where rates are at,” Sahnger said.
So Sahnger will call to tell them that rates are near record lows.
2 CONVERT AN ARM: Stability-hungry borrowers are ditching adjustable-rate mortgages and refinancing into fixed-rate loans.
“Everybody’s frightened about inflation, so if they have an adjustable loan, that’s the No. 1 reason they’re getting out of them,” said Jeff Lazerson, president of Mortgage Grader, a lender based in Laguna Niguel, Calif. “It’s not because you can get them at a better rate, but because you can get them at a stable rate.”
Other borrowers swing from one hybrid ARM to another, said Matt Hackett, underwriting manager for Equity Now, a direct mortgage lender based in New York City.
“We’ve done a few of those for people who were in a five-year ARM that they originated four years ago, that was getting ready to adjust,” Hackett said.
Even though the rates were about to adjust downward, they got new 5/1 ARMs to extend low rates another five years.
3 GET A MORTGAGE ON A PAID-OFF HOUSE: This isn’t technically a refi, but it’s close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets.
“There’s a lot of people who don’t have a mortgage,” Hackett said. “Maybe they want to go to Florida, buy a second home with cash. So they cash out their first home and take the cash and go down there and don’t need a financing contingency, and they’re in a better position to bargain.”
They could also take out a mortgage on a paid-off property to start a business or for other reasons.
4 CASH OUT TO CONSOLIDATE DEBT: When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it.
The cash-out refi craze ended when the housing bust began. But there are still a few cash-out refis.
“We’re still in the business of cashing out people – paying off credit cards, for example,” said Michael Moskowitz, president of Equity Now.
Michael Becker, mortgage banker at Happy Mortgage in Lutherville, Md., said, “It’s not like it was years ago, when people took cash out to buy things, like a pool, a car or an RV. It seems more to be paying down debt, lowering their debt service, trying to save money.”
5 CASH OUT TO BUY OTHER PROPERTY: Lately, Lazerson has noticed an interesting refinancing trend.
“One thing that’s a trend now is that people are taking money out to purchase other properties,” he said.
Often, it’s to buy investment properties.
Refinancing to buy property can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used.
For example, which property will be the primary residence? Will the other property be rented out? Those are issues for a financial adviser or tax professional to untangle.
6 CONSOLIDATE TWO MORTGAGES: Some homeowners want to combine their first mortgage with the home equity line of credit.
“I’m seeing a lot of people, even if their rate on their home equity line of credit is 3 percent, refinancing to get rid of them,” Becker said.
Why get rid of a loan with such a low rate?
“Because they’re worried if five years from now, what if that rate jumps up to 12 (percent), 11 (percent), 13 percent?” Becker said.
7 ADDRESS FAMILY MATTERS: Divorces often lead to refis as a means of removing the absent former spouse from the note.
“That has less to do with rates and is more about timing,” Lazerson said.
Moskowitz said he recently did a $110,000 cash-out refi from a woman who used the money to bail out a son facing foreclosure on his own house.
That’s not how Moskowitz would spend his money from a cash-out refi. But to anyone who agrees with him, he said, “You’re clearly not a mother.”
If you are one of the many Americans with lots of equity in your home and would like to have more money in your pocket each month and you are 62 or older, a reverse mortgage may be right for you. The reverse mortgage is a financing tool that allows homeowners over 62 to keep their homes and stay in it without a mortgage payment (homeowners must continue to pay their property taxes and homeowners insurance).
It also allows a homeowner to tap equity in their homes to use for whatever they want. This loan has a variety of options. With a reverse mortgage, the homeowner can receive regular fixed monthly payments and/or a lump sum in cash and/or have access to a line of credit. The reverse mortgage can be used for a purchase or a refinance and can be customized to each borrower’s needs.
To qualify, all homeowners who are on title (or, in the case of a purchase, going on title) must be older than 62 and the home must be a principal residence of one to four units.
Condominiums, townhomes (planned unit developments), single family residences and manufactured homes (built after 1976) are all eligible properties.
Good credit is not required for this loan; in fact, even a home in foreclosure may qualify. Any federal debt such as IRS tax liens must be paid but this type of derogatory credit will not cause a loan to be denied. A bankruptcy is the only situation that may disqualify a person for this loan.
While there are different products available, the most popular Reverse Mortgage is FHA insured and is officially called a “Home Equity Conversion Mortgage (HECM) or, in slang, a ‘Heck-Um.’ The actual terms of the reverse mortgage are dependent on the borrowers’ ages, equity in the property, value and location of the home. When Reverse Mortgages first came out, the common misconception was that when the homeowner died, the heirs would lose any equity still in the home to the lender. If that was ever the case, it is certainly not the case today.
The reverse mortgage is just a lien on the property; the homeowner(s) is the only one on title and if and when the property is sold or the homeowner moves out, the Reverse Mortgage lender must be paid back either through a sale or a refinance. Upon death of the homeowner(s), the heirs have 6 months to pay off the reverse mortgage. Proceeds of the sale will go to the owner or heirs. If the amount owed is greater than the sale proceeds, there is no obligation to pay back the difference.
If you are a senior and do not want to be tied to a mortgage payment or if you want to tap the equity in your home to create some cash, be sure to explore the options of a reverse mortgage.
The homeowner’s responsibility is limited to paying the standard homeowner’s insurance and property taxes. There are no mortgage payments to be made. While most Reverse Mortgages are put in place as a refinance, it is also possible to buy a home with a reverse mortgage.
The buyer only needs to come up with the down payment and instead of obtaining a traditional mortgage that requires monthly payments, the reverse mortgage would provide the difference between the sales price and the down payment and would never require any monthly payments. Again, the homeowner would only be responsible for homeowner’s insurance and property taxes. To find out more, consult with an experienced, local HUD-approved lender who offers reverse mortgages. Not every lender provides Reverse Mortgages.
Local mortgage consultant Peter Boutell has been writing a weekly column for the Sentinel since 1995. Send questions to ‘Lending a Hand,’ 1535 Seabright Ave., Santa Cruz, CA 95062, fax them to 425-1044 or email them to email@example.com. Archived columns are available at www.peterboutell.com.
Some economists—together with policymakers at the White House and the Federal Reserve—have raised concerns that the mortgage-credit pendulum, after swinging too far to one extreme during the bubble, has today gotten stuck too far in the other direction. The worry is that entry-level buyers and others that suffered job loss or an income shock during the recession could be shut out of the housing rebound.
All-cash buyers have accounted for roughly one third of sales of previously-owned homes in recent years. “Goodness sakes—it shouldn’t be that high,” said Matt Vernon, a top lending executive at Bank of America, at an industry conference last fall. The high share of cash buyers is a sign that “a lot of folks are avoiding the hassle of our industry,” he said.
Research by analysts at the Urban Institute, a think tank in Washington, found that if credit standards in 2012 had returned to pre-bubble levels, around 200,000 more mortgages would have been made that year.
A separate report from economists at Goldman Sachs estimated that new home sales should rise to 800,000 units in 2017, from 430,000 last year, based on traditional drivers such as job growth and household formation. But if lending standards remained at their current level, new home sales would rise to just 600,000 units.
– AnnaMaria Andriotis contributed to this post.
The credit freeze is starting to thaw.
Mortgage lenders are beginning to ease the restrictive lending standards enacted after the housing boom turned to bust, a sign of their rising confidence in the housing market.
While standards remain tight by historical measures, lenders have started to accept lower credit scores and to reduce…
NEW YORK, April 17, 2014 /PRNewswire/ – Mortgage rates fell further this week, with the benchmark 30-year fixed mortgage rate retreating to 4.43 percent, according to Bankrate.com’s weekly national survey. The average 30-year fixed mortgage has an average of 0.33 discount and origination points.
To see mortgage rates in your area, go to http://www.bankrate.com/funnel/mortgages/
The average 15-year fixed mortgage rate fell to 3.48 percent, while the larger jumbo 30-year fixed mortgage rate dropped to 4.43 percent. Adjustable rate mortgages decreased as well, with the 5-year slipping to 3.32 percent; and the 7-year and 10-year falling to 3.56 percent and 3.84 percent, respectively.
“Mortgage rates dropped for the second week in a row amid mixed economic news abroad and in the United States,” said Polyana da Costa, senior mortgage analyst at Bankrate.com. “Despite some recent economic news, the United States is still perceived by investors as one of the safest places to park their money. Whenever investors seek safety in U.S. Treasuries and mortgage bonds, the yields on those investments tend to fall. Mortgage rates normally follow that trend.”
On May 1, 2013, the average 30-year fixed mortgage rate was 3.52 percent. At that time, a $200,000 loan would have carried a monthly payment of $900.32. Less than a year later, with the average rate at 4.43 percent, the monthly payment for the same size loan would be $1,005.07, a difference of $105 per month for anyone that waited.
30-year fixed: 4.43% — down from 4.47% last week (avg. points:0.33)
15-year fixed: 3.48% — down from 3.52% last week (avg. points:0.23)
5/1 ARM: 3.32% — down from 3.34% last week (avg. points:0.22)
Bankrate’s national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.
For a full analysis of this week’s move in mortgage rates, go to http://www.bankrate.com/mortgagerates
The survey is complemented by Bankrate’s weekly Rate Trend Index, in which a panel of mortgage experts predicts which way the rates are headed over the next seven days. The panelists are divided, with 22 percent forecasting an increase in the coming week, and an equal 22 percent predicting rates to fall further. The remaining 56 percent expect mortgage rates to remain more or less unchanged in the next week.
For the full mortgage Rate Trend Index, go to http://www.bankrate.com/news/rate-trends/mortgage.aspx
To download the Bankrate Mortgage Calculator Mortgage Rates iPhone App 2.0 go to
About Bankrate, Inc.
is a leading publisher, aggregator, and distributor of personal finance content on the Internet. Bankrate provides consumers with proprietary, fully researched, comprehensive, independent and objective personal finance editorial content across multiple vertical categories including mortgages, deposits, insurance, credit cards, and other categories, such as retirement, automobile loans, and taxes. The Bankrate network includes Bankrate.com, our flagship website, and other owned and operated personal finance websites, including CreditCards.com, Interest.com, Bankaholic.com, Mortgage-calc.com, CreditCardGuide.com, InsuranceQuotes.com, CarInsuranceQuotes.com, InsureMe.com, and NetQuote.com. Bankrate aggregates rate information from over 4,800 institutions on more than 300 financial products. With coverage of nearly 600 local markets in all 50 U.S. states, Bankrate generates over 172,000 distinct rate tables capturing on average over three million pieces of information daily. Bankrate develops and provides web services to over 80 co-branded websites with online partners, including some of the most trusted and frequently visited personal finance sites on the Internet such as Yahoo!, CNN Money, CNBC, and Comcast. In addition, Bankrate licenses editorial content to over 500 newspapers on a daily basis including The Wall Street Journal, USA Today, The New York Times, The Los Angeles Times, and The Boston Globe.
For more information contact:
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SOURCE Bankrate, Inc.
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Mortgage lenders are students of history.
They’ve learned that when people haven’t paid their bills, it’s likely that practice will continue.
The past is prologue – except when there are extenuating circumstances. The federal government doesn’t want people who’ve missed bills through no fault of their own to be kept from buying a home.
Enter the FHA’s “Back to Work” program, which has begun to allow people with serious dents in their credit history – a foreclosure, bankruptcy, short sale, or deed-in-lieu of foreclosure – to be approved for a new government-backed mortgage just 12 months after the negative event.
“Normally it takes three to five years [after one of the above] to be eligible” for a new FHA mortgage, notes Heather Shanahan, director of program development at Springboard, a housing and credit counseling nonprofit.
But, if you can show that your household income decreased by 20 percent or more because of a loss of a job, or because you own a business that suffered, or you’ve had your hours cut, you may qualify for a FHA mortgage, says Shanahan, provided you’ve paid bills regularly for at least 12 months after one of these credit stains.
“I haven’t heard of a lot of borrowers using this program,” observes Don Frommeyer, president of The Association of Mortgage Professionals. “The financial crisis began several years ago. For many, it’s been years ago when they were laid off.”
But it can take a couple of years of missed payments before a foreclosure actually occurs, counters Shanahan, who says Springboard has seen “a steady stream” of people taking the first step – an hour long phone credit counseling session – from a HUD-approved counseling agency [visit hud.gov for a list of agencies].
Lenders also want to see proof of timely rent payments, Shanahan says. For example, if after the loss of a home people lived with friends or family, it will be difficult to be approved, she explains.
— Marilyn Kennedy Melia
© CTW Features
In recent years,
questions about reverse mortgages, and whether or not they are a practical way
to supplement retirement income, have become more frequent. I will explain the specifics of reverse mortgages in more detail for those who aren’t familiar with all of the benefits and costs.
What is a reverse mortgage? As you would guess, a lender
makes payments to you based on a percentage of your home’s appraised value.
There are three kinds of reverse mortgages.
I’ll be focusing on HECMs
for this post. HECMs allow a
homeowner or homeowners, aged 62 and older, who either own their home outright or have a small
existing mortgage, to borrow money against the equity of their home. Only single-family houses, occupied by the borrower
or two to four unit homes, with at least one unit occupied by the borrower, are
eligible. During the application process you’re required to meet
with a government-approved housing counselor who will determine if you’re financially
capable of paying the costs associated with the loan.
Because you’re taking out a loan against your home’s value,
you’re still the property owner until the loan is due. This means you’ll continue
to pay property taxes, homeowners’ insurance, and maintenance costs. The
balance of the loan becomes due when the borrower moves out of the house, or
passes away. The house is then liquidated, and the proceeds are used to pay off
the balance of the loan.
There are limits to how much a person can borrow using a HECM. A person can only take up to the FHA
HECM mortgage limit of $625,500. If
the home’s value is under that cap, then the borrower is able to access a
percentage of home’s appraised value. However, owners with a highly valued home
and little or no mortgage, may qualify for larger loan advances through a propriety-reverse mortgage, though the cost will likely be higher.
A reverse mortgage is typically structured so that the total
loan amount, including interest and fees, will not exceed the value of the home
over the life of the loan. However, if the proceeds from your home’s sale
exceed the balance of the loan, then you, your spouse, or your heirs will
receive the difference. Should the sale not cover the loan balance, then, in most
cases, the lenders insurance will cover the difference.
The fact that reverse mortgages allow people to stay in
their own homes is one of its major benefits, but if you’re considering
relocating or renting, then this is not your best option. If you become sick
and have to move into an assisted living facility for 12 consecutive months, then
your home is no longer considered a primary residence, and the bank has the
ability to take control over the house. This can become a major problem if only
one borrower is listed on the mortgage.
The amount of money you can expect to receive from a reverse
mortgage depends on several factors. The major components are your age,
value of the home and the length of the loan. If there are two people listed
on the mortgage, then the age of the youngest borrower is used. The current
interest rate, initial mortgage insurance premium, closing costs and repair
costs can also play a role in determining the monthly amount that you can
expect to receive.
Current interest rates are important to consider, because
they play two very important roles in the reverse mortgage process. First, they
help determine a borrower’s loan advance amounts. Second, they determine the interest
charged on the outstanding balance. It’s important to understand that the interest
accrues over time, increasing the loan amount. This means that interest
payments can take up a decent portion of your reverse mortgage payments,
leaving you with less money than expected.
There are several ways to structure payments from a reverse
mortgage, but the most common are:
Insurance premiums. All FHA backed loans require lenders to collect mortgage
insurance premiums. If you withdraw less than
60 percent of the available loan amount, during the first year, the mortgage insurance premium is 0.5 percent of
the maximum claim amount. If you take over 60 percent, the mortgage insurance premium increases to 2.5 percent. Borrowers
will also pay a 1.25 percent annual premium that based on the maximum claim amount.
Outside of the insurance costs, reverse mortgages also tend
to have high fees, including above average origination costs, closing costs and include numerous service fees. Origination fees can get fairly expensive.
The maximum allowed origination fee on federally insured loans is 2 percent of the
initial $200,000 of a home’s value and 1 percent of the remaining value, with a cap of
$6,000. As you can see, the costs of a reverse mortgage can quickly eat away at
the amount of money available.
A reverse mortgage isn’t right for everyone. You should
consult a financial professional who is familiar with your situation before you
would take this option. Although being able to access the equity in your house
without having to make monthly payments is attractive, the costs and fees associated
with a reverse mortgage are negatives that must be considered. People should remember they might not be able to bequeath their house to heirs, which could also be a
Seniors with a high credit score should carefully consider
and analyze their options, including traditional mortgages and home equity
loans. If you can comfortably make the monthly payments, then a home equity
loan might be a way to accomplish the same goal, while also avoiding the fees
associated with a reverse mortgage.
Bank of America Corp. fell in New York trading after the lender posted a surprise loss driven by $6 billion of costs tied to mortgage disputes.
The shares slid 1.6 percent to $16.13 at 4:15 p.m. as investors assessed the newest batch of legal expenses, which have cost Bank of America more than $50 billion since the financial crisis. The stock slipped as much as 3.7 percent during the session, its worst intraday showing since June.
Bank of America’s $276 million quarterly deficit was the fourth since Chief Executive Officer Brian T. Moynihan took the top job at the start of 2010. His predecessor’s 2008 purchase of Countrywide Financial Corp. left BofA responsible for thousands of bad home loans, and the bank told investors today that more legal costs lay ahead.
“It’s a reminder there’s still a way to go to on litigation expenses for the industry and Bank of America,” said Devin Ryan, an analyst at JMP Securities LLC in New York. “You think you have your arms around what the exposure is to find there’s still room for surprises.”
The first-quarter loss equaled 5 cents a diluted share, compared with a profit of $1.48 billion, or 10 cents, a year earlier. Companywide revenue at the Charlotte, North Carolina-based firm dropped 2.7 percent to $22.6 billion. The bank is the second-largest in the U.S. by assets.
“The cost of resolving more of our mortgage issues hurt our earnings this quarter,” Moynihan said in a statement today detailing results. “But the earnings power of our business and customer strategy generated solid results.”
The $6 billion in legal costs included $3.6 billion tied to a settlement disclosed last month that covered Fannie Mae and Freddie Mac. There was also a $2.4 billion increase in reserves for “previously disclosed legacy mortgage-related matters,” the lender said in a presentation. Chief Financial Officer Bruce Thompson declined to specify which cases triggered the added reserves.
“These are ongoing discussions that we obviously have with people we’re in litigation with, and I just don’t think it’s going to be productive to give a breakout,” Thompson told reporters.
The bank also announced a $950 million accord today that extinguished claims from bond insurer Financial Guaranty Insurance Co. The deal includes $584 million for the bond insurer plus cash payments to trusts for mortgage-backed securities, according to the firm. The cost was already covered by Bank of America’s reserves.
Last month, the bank said it may have to pay penalties tied to probes from government entities including the Justice Department and state attorneys general and that it faces civil lawsuits from the DOJ regarding its sales of mortgage bonds.
Remaining litigation costs could vary greatly from quarter to quarter, Thompson, 49, said during a conference call with analysts.
“I think we need to be realistic in your thoughts this quarter as it relates to the remaining couple of matters that we disclosed,” Thompson said. “It can be lumpy and it’s just very hard to predict.”
Earnings before taxes and loan-loss provisions fell to $500 million in the first quarter, compared with $3.9 billion a year ago. The measure is watched by analysts as a means to gauge a firm’s profitability without some of the distortions caused by one-time items.
Global markets, the trading operations overseen by co-Chief Operating Officer Thomas K. Montag, posted a 3.1 percent increase in quarterly profit to $1.24 billion excluding accounting adjustments tied to credit. Revenue in the division slipped 0.4 percent to $4.9 billion on declines in rates and currencies.
Revenue in the fixed-income, currency and commodities sales and trading division decreased 15 percent to about $2.95 billion, excluding the impact of a $450 million writedown a year ago. Equities sales and trading revenue was $1.2 billion, similar to a year earlier.
Income at the global banking unit fell 3.5 percent to $1.24 billion on a higher provision for credit losses. The consumer and business banking unit’s profit rose 15 percent to $1.66 billion as expenses fell 4 percent. The companywide staff was reduced by more than 3,500 people to 238,560 during the quarter.
Resolving the Fannie Mae and Freddie Mac cases, which date from 2011, ended one of the biggest legal disputes facing Bank of America. The settlement covered $57.5 billion in mortgage bonds.
Bank of America also said in a February regulatory filing that authorities in North America, Europe and Asia are examining participants in foreign-exchange markets for misconduct that spanned several years. The lender said it’s cooperating.
Last month, the lender won Federal Reserve approval for a higher dividend after lowering the amount of its initial request for returning capital to shareholders. The 5-cent quarterly payout, rising from a penny, will be accompanied by a $4 billion stock repurchase program.
To contact the reporter on this story: Hugh Son in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Peter Eichenbaum at email@example.com Rick Green, Dan Kraut