Bank of America has agreed to pay $9.3 billion to the Federal Housing Finance Agency (FHFA) to settle claims that it sold faulty mortgages to Fannie Mae and Freddie Mac between 2005 and 2007.
Most of the faulty mortgages in question were originated by Countrywide Financial and Merrill Lynch, which were acquired by Bank of America in 2008.
As per the settlement, Bank of America will pay $5.83 billion to the FHFA and certain named individuals to settle the claims. In addition it must repurchase, or buy back, some of the poorly underwritten mortgage loans that were sold to Fannie and Freddie, as well as cover certain legal fees related to the case. A statement from the FHFA did not provide dollar figures for the buybacks or legal expenses.
‘FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement of these cases,’ Melvin L. Watt, director of the FHFA, says in a release. ‘This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit. Many potential homeowners will benefit from increasing certainty in the marketplace and that is very much the direction we should be taking.’
This is the tenth settlement the FHFA has announced in relation to the 18 lawsuits the agency filed in 2011 over faulty mortgage-backed securities. Last week, the FHFA announced that Credit Suisse Group had agreed to pay $885 million to settle a similar lawsuit. Under the terms of that agreement, Credit Suisse will pay approximately $234 million to Fannie Mae and approximately $651 million to Freddie Mac. In exchange, certain claims against Credit Suisse related to the securities involved will be released.
In addition, the FHFA announced last month that it had reached a settlement with SociÃ©tÃ© GÃ©nÃ©rale – another one of the banks sued – for $122 million. That lawsuit was to resolve the sale of faulty mortgages to Fannie Mae and Freddie Mac in 2006.
In settling the lawsuits, each of the banks admitted no wrongdoing and no criminal charges were brought.
With this latest lawsuit, the FHFA has now recouped nearly $15 billion in settlements related to the sale of faulty or fraudulently underwritten mortgages that were sold to Fannie and Freddie.