Fannie, Freddie win $3.3-billion settlement from BofA, Ally over dud mortgages
Bank of America Corp. and Ally Financial Inc. have agreed to pay a combined $3.3 billion to settle remaining demands that they repurchase 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.
Wall Street reacted positively to the deals, which one analyst called "a gift" to Bank of America. Shares in the Charlotte, N.C., bank were up 66 cents, nearly 5%, to $14 in morning trading, and helped lead an index of bank stocks higher.
The settlements won't directly affect consumers. They do not cover breaches of promises made to investors about handling of mortgage customer service or the processing of foreclosures, said the Federal Housing Finance Agency, which oversees Fannie and Freddie.
For Bank of America, it's just the latest in a series of legal settlements stemming from its acquisition of Countrywide. The bank is among the major lenders that are negotiating with a coalition of state attorneys general to settle allegations of widespread wrongdoing in dealing with distressed borrowers and foreclosure proceedings. Arizona and Nevada have sued BofA separately over its handling of loan modifications.
Also excluded from the settlements are demands for loan repurchases made by investors in so-called private-label mortgage securities. These were bonds that were put together by loan companies or Wall Street without the help of Fannie and Freddie and included a large number of subprime and other highly risky loans.
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 said that, separately from the settlement, it had set aside about $3 billion in the fourth quarter to cover the cost of buying loans back from Fannie and Freddie. It also said that it had reduced the value on its books of its home-lending unit by $2 billion to reflect continued losses on residential mortgages.
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.
“These actions resolve substantial legacy issues in the best interest of our shareholders,” Moynihan said in a statement.
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 goverment-sponsored enterprises. Whalen said the deal is so favorable to the bank that he regarded it as "a gift" from Fannie and Freddie.
-- E. Scott Reckard
Photo: Bank of America customers won't be directly affected by the settlement. Credit: Ricardo DeAratanha / Los Angeles Times