Will a $3.3-billion Settlement to Fannie, Freddie Affect Your Clients?

Bank of America Corp. and Ally Financial Inc. have agreed to pay a combined $3.3 billion to settle remaining demands that they repurchased soured mortgages from Fannie Mae and Freddie Mac, the giant home-loan buyers that wound up wards of the government during the financial crisis.

The claims stem from alleged misrepresentations made about borrowers’ incomes, home values and other factors when Ally, formerly known as GMAC, and Bank of America, which includes the former Countrywide Financial Corp., sold the loans to the government-sponsored enterprises. The GSEs back most of the home loans made in the United States.

So, will this claim affect your clients looking to secure home loans? According to the Federal Housing Finance Agency, the settlements won’t directly affect your clients. They do not cover breaches of promises made to investors about handling of mortgage customer service or the processing of foreclosures.

Bank of America, which agreed to pay $2.8 billion, and Ally, which will pay nearly $500 million, are among the big lenders that already have been forking over billions of dollars to Fannie and Freddie as a result of mortgages gone bad.

Bank of America, which by some measures is the largest U.S. bank, said the $2.8-billion payment — $1.28 billion to Freddie Mac and $1.52 billion to Fannie Mae — “has addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs.”

Bank of America President and Chief Executive Officer Brian Moynihan said most of the problems stem from loans sold by Countrywide, the aggressive Calabasas-based home lender that became part of BofA in a controversial 2008 acquisition by the bank’s then-CEO, Kenneth Lewis.
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Fannie Mae, based in Washington, and Freddie Mac, based in McLean, Va., have been struggling to recoup some of the enormous losses that caused them to wind up in government conservatorship.
Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said the regulator had reviewed and approved the settlement agreements, which he called a $3.3-billion boon to taxpayers.

Analyst Christopher Whalen of Institutional Risk Analytics said Bank of America still faces plenty of mortgage-related costs even after making the settlement with the government-sponsored enterprises. Whalen said the deal is so favorable to the bank that he regarded it as “a gift” from Fannie and Freddie.

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