Bank of America Makes a Surprisingly Agile Move

Bank of America (BAC -2.99%) is not often cited for its agility. Nevertheless, the bank held a conference call yesterday to brag about its quickness.

Even though banks were given three years to comply with the national mortgage settlement reached in February of this year, B of A may be alone in having its obligation to mortgage holders met by February of next year, a full two years earlier than expected. The other parties to the $25 billion dollar settlement -- JPMorgan Chase (JPM -1.10%), Wells Fargo (WFC -2.09%), Citigroup (C -1.67%), and Ally Financial -- are required to file regular reports on the status of meeting the settlement, and they all did so as expected yesterday. With Bank of America the only one broadcasting its progress, however, investors will need to wait until Monday -- when the settlement's monitor releases his own progress report -- to find out how the others are doing. 

What it means for homeowners
Bank of America will ultimately shoulder more of the burden in the settlement than the other four participants, which should be good news for the 164,000-plus B of A mortgage customers affected by the "robo-signing" foreclosure debacle. By February 2013, Bank of America will have spent $15.8 billion as part of the settlement.

The bulk of the relief, around $7.4 billion, will come from short sales or deeds-in-lieu of foreclosure. For those unfamiliar with the terms, a short sale is an agreement which allows the homeowner to sell the property for less than the amount remaining on the mortgage, while a deed-in-lieu of foreclosure involves bank simply taking the deed to the property and writing off the remaining balance of the loan instead of foreclosing on the homeowner. 

The the remaining balance of the settlement will comes from various sources including: $4.75 billion in principal reductions for 30,000 borrowers, modification or elimination of $2.5 billion in home equity loans or lines of credit for 45,000 borrowers, $617 million in relocation assistance, and $250 million in interest rate reductions. For the $4.75 billion in principal reductions, the average writedown was $150,000, which would drastically help any homeowner facing foreclosure. Roughly, 40% of the loans modified in this way were held in B of A's own portfolio. 

What it means for investors
But what of the other 60% of loans that received principal reductions? Those were primarily owned by the mortgage bond holders. As you can imagine, they aren't very happy about it, complaining that the mortgage servicers are getting credit for principal writedowns in which the losses are taken by the bondholders. Nevertheless, consumer advocates don't necessarily care who pays for the modifications, only that they are completed. 

For shareholders of Bank of America, this can only be viewed as good news. The sooner that the bank can get out from under this settlement, the better, which would allow the bank to start executing some of its other goals. By accelerating its own participation in the settlement, Bank of America reiterates that it is ready to move forward from this part of the mortgage crisis, which could ultimately signal a great time to buy the bank.