Agency Wants Bank to Buy Back More Than $1.4 Billion in Loans
Freddie Mac FMCC 0.00% and Bank of America BAC +0.52% are in settlement talks to resolve disputes over more than $1.4 billion in faulty mortgages Freddie has said Bank of America should have to take back, according to people familiar with the matter.
The deal would be the second such agreement between Bank of America and Freddie since 2011. It would largely shield the bank from any future repurchase demands from Freddie stemming from loans sold before 2012. The second-largest U.S. bank by assets is hoping to settle before the end of the year, said one of the people.
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Terms of the potential settlement couldn’t be determined. Such settlements with other banks have varied depending on the terms of the agreement and the amount of loans covered. While banks typically press to pay less than the full amount of outstanding claims, they sometimes will end up paying slightly more to prevent any new repurchase demands from materializing on loans sold as long ago as 2000.
Since 2011, Bank of America, based in Charlotte, N.C., has reached two such settlements with Freddie’s larger sibling,Fannie Mae, FNMA +1.29% including one worth $11.6 billion earlier this year.
Fannie and Freddie can force banks to buy back loans that don’t adhere to agreed-upon standards, and since 2009, both companies have demanded that lenders repurchase tens of billions in soured loans made as the housing boom turned to bust.
The firms’ regulator has directed the mortgage-finance giants to wrap up by the end of this year the loan file reviews that result in such so-called put-back disputes. “Resolving the legacy issues…is something we’ve got to do,” Edward DeMarco, the acting director of the Federal Housing Finance Agency, told reporters last month.
The settlement talks with Freddie aren’t related to separate litigation filed by the FHFA in 2011 in which the agency is seeking more than $6 billion over allegedly misleading disclosures on some $57.5 billion in securities sold by Bank of America and two subsidiaries, Countrywide Financial and Merrill Lynch & Co, which were acquired by the bank in 2008.
Freddie had $1.4 billion in Bank of America repurchase demands as of Sept. 30, according to federal filings, the largest for any bank. That represented around 42% of all of Freddie’s outstanding repurchase demands.
In January 2011, Bank of America agreed to a $1.35 billion settlement with Freddie, but that deal included only loans sold by Countrywide. Bank of America’s $11.6 billion agreement with Fannie earlier this year included $6.7 billion in loan repurchases. That followed a smaller $1.5 billion deal with Fannie in 2011.
During the third quarter, Freddie reached settlements with Wells Fargo WFC -0.03% & Co., Citigroup Inc. C +0.55% and SunTrust Banks Inc. STI +0.15% worth $1.3 billion combined. Last month, J.P. Morgan Chase JPM +0.24% & Co. agreed to pay $1.1 billion to resolve such claims.
Freddie was criticized for its 2011 Bank of America deal by the inspector general for the FHFA, which in a report suggested that the settlement figure was too low—a claim that was strongly disputed by executives at Freddie and Bank of America.
Bank of America’s resolution of the Fannie demands earlier this year, meanwhile, followed a lengthy battle in which Bank of America stopped selling new loans to Fannie. Even though the repurchase issue has been settled, Bank of America hasn’t resumed new loan sales to Fannie.