Add yet another major settlement to the still-growing list of huge payouts by the nation’s largest banks to settle claims over toxic mortgage-backed securities. Bank of America has now agreed to pay $404 million to Freddie Mac to resolve all repurchase liabilities on home loans that it sold to the government-controlled mortgage company from 2000 to 2009. The settlement covers approximately 716,000 loans.
The List of Large Settlements Continues to Grow
Since 2010, Bank of America has agreed to pay more than $45 billion to settle various claims stemming from the U.S. housing and financial crisis, including a prior settlement to pay Freddie Mac $1.35 billion primarily to address loans sold by Countrywide Financial, which was acquired by Bank of America in 2008. Meanwhile, since September of this year, Freddie Mac has agreed to four other similar settlements stemming from repurchase liabilities, including deals worth $480 million with J.P. Morgan Chase, $65 million with SunTrust, $869 million with Wells Fargo, and $395 million with Citigroup.
Since 2009, both Freddie Mac and its larger rival, Fannie Mae, have demanded that lenders repurchase tens of billions in allegedly toxic loans made as the housing boom turned into a bust, but this latest deal should largely shield Bank of America from any further such repurchase demands from Freddie or Fannie.
Originators: Beware of Banks Trying to Recover Their Losses
These huge settlements entered into between the country’s largest banks and Freddie and Fannie, as well as the Federal Housing Finance Agency, which has served as Fannie and Freddie’s conservator since their taxpayer bailout in 2008, will likely cause these lenders to continue to press repurchase and indemnification claims against loan originators in an effort to recover some of the money the lenders have paid out. It will be interesting to see whether Bank of America will give a full and transparent accounting of how much settlement money pertained to particular loans sold to it by a particular originator. It also remains to be seen whether Bank of America can legitimately tie its pay-outs to specific underwriting defects by the originator, and whether its claims can survive statute of limitations defenses, as well as many other defenses that such claims would trigger.