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FHFA Nets $3.3 Billion in Repurchase Settlements

The FHFA, the regulator for the GSEs (Fannie Mae and Freddie Mac), today approved a series of three settlement agreements between the GSEs and two counterparties, Bank of America and Ally Financial, that will see the banks pay $3.3 billion dollars in all to settle repurchase claims on bad loan agreements.

Under FHFA Administrator Ed DeMarco, the agency has been vigilant in seeking repurchases of mortgages or mortgage-backed securities that had either improper underwriting standards or inadequate transfer of assets to the mortgage trusts. The agreements, negotiated between the individual GSEs and the banks, include a $2.6 billion settlement with BofA and two separate settlements with Ally (now the corporate parent of GMAC Mortgage), which in all total around $700 million. This resolves a subpoena on GMAC-issued private-label mortgage-backed securities purchased by Fannie Mae, as well as any representation or warranty claim relating to those underlying loans. Importantly, FHFA still holds out the possibility of suing over violation of servicing obligations or foreclosure processing (i.e. foreclosure fraud). So this is a pretty circumscribed settlement, with only two other parties, and $3.3 billion is a decently large number.

This is from the release from FHFA:

“Combined, the agreements provide $3.3 billion in recovery to the Enterprises and, thereby, to taxpayers,” said FHFA Acting Director Edward J. DeMarco. “The agreements also reflect FHFA’s ongoing efforts to ensure the Enterprises enforce claims for violations of representations and warranties incurred by the Enterprises or breaches of other legal obligations.” […]

“While these agreements are an important step, the Enterprises have other outstanding claims across a range of counterparties and they are being pursued,” said DeMarco.

BofA shares actually rose on the news, since they are most exposed by the Fannie and Freddie repurchases, and $2.6 billion fits into their budget, I guess. BofA claims that the payments “extinguish all outstanding and potential mortgage claims” from Freddie Mac and most of their from Fannie Mae. But that’s a pretty shortsighted view, as it doesn’t resolve any servicer errors or foreclosure fraud issues. This was basically about repurchases over underwriting standards. And it was just the GSEs.

If they’re chortling now, you can bet that BofA thinks it got away with something. But I’m not so sure yet.

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David Dayen

David Dayen