The Federal Trade Commission (FTC) said on Monday that Bank of America Corp. (BAC) will pay $108 million to settle federal charges against its acquired mortgage lender Countrywide Financial Corp. for collecting excessive fees from about 200,000 distressed homeowners.
 
Countrywide Financial Corp. collected excessive fee before it was acquired by BofA in July 2008. The settlement amount, which is one of the largest in FTC’s history, will be used to reimburse overcharged borrowers.
 
According to the FTC chairman Jon Leibowitz, during the boom period, Countrywide significantly gained from making risky loans to homeowners. Again, during the economic downturn the company profited from loan defaults.
 
Countrywide swindled homeowners who were behind on their mortgages payments and charged thousands of dollars as fees. These fees were far higher than market rates. The fees inflated after Countrywide created subsidiaries to hire vendors to supply the services.
 
The settlement of federal charges can be viewed as one of the strategies of BofA to keep itself away from the housing trouble. BofA did not admit to any transgression for the charges. BofA also wanted to avoid the expense and distraction associated with the case.
 
BofA’s first-quarter 2010 earnings came in at 28 cents per share, substantially ahead of the Zacks Consensus Estimate of 9 cents. However, this compares unfavorably with the earnings of 44 cents in the prior-year quarter.
 
Strong capital markets activity and lower provision for credit losses were the primary factors that helped BofA bounce back to profitability after incurring significant losses for the last couple of quarters.
 
The market turmoil was more harmful for BofA than its peers except Citigroup (NYSE:C). However, BofA concluded its biggest acquisitions in this period. Following Countrywide, the company acquired Merrill Lynch almost during the height of the financial crisis last year.
 
Though there remain concerns related to BofA’s inconsistent credit quality and net interest yield compression, we anticipate continued synergies from its large scale operations and balance sheet restructuring. Finally, as the company has settled the litigation issues over its Merrill Lynch acquisition and is in the process of resolving changes against Countrywide, there remains limited room for regulatory and legal pressure.

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