As part of its first quarter earnings announcement, Bank of America (NYSE: BAC) announced that it reached its first significant agreement to resolve a non-GSE claim regarding shoddy mortgages. Though it is a positive development insofar as acknowledging responsibility and helping move things back toward normal, it may still be too little too late for the mortgage insurers.
The Deal with Assured Guaranty
Bank of America announced that it had reached an agreement with Assured Guaranty to resolve the insurer's claims against Bank of America for saddling it with billions of non-complying mortgages. The agreement covers a total of 29 first and second-lien residential mortgage trusts with an original exposure of nearly $36 billion and a current principal at risk of just under $11 billion.
Under the agreement, Bank of America will make a $1.1 billion cash payment to Assured Guaranty and enter into a loss-sharing arrangement. This reinsurance agreement will reimburse Assured Guaranty for 80% of its losses on the 21 first-lien transactions until the collateral losses exceed $6.6 billion. All in all, that part of the agreement looks to have an expected value of about $500 million right now ... assuming things do not get dramatically worse. (For related reading, see 2010: A Year Of Banking Dangerously)
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