Bank of America announced Wednesday that it has agreed to pay $9.33 billion to the Federal Housing Finance Agency (FHFA) to settle a lawsuit the Fannie Mae-Freddie Mac regulator filed following the housing market crash in 2008.
In a lawsuit filed in September 2011, the FHFA had accused Bank of America and 17 other institutes of selling Fannie Mae and Freddie Mac faulty mortgages. The latest settlement will free all entities of Bank of America, Merrill Lynch and Countrywide of the fraud allegations, according to an official statement.
According to the terms of the settlement, Bank of America will pay FHFA $6.3 billion in hard cash and the rest by purchasing mortgage-backed securities worth about $3.2 billion from the firm. The statement also reveals that the settlement resolves 88 percent "of the unpaid principal balance of all RMBS as to which RMBS securities litigation has been filed or threatened for all Bank of America-related entities."
Fannie Mae and Freddie Mac were bailed out by the government when the housing market crashed in 2007. The companies received aid of around $170 billion. Of the 18 lawsuits, the agency has solved 12, collecting $19.1 billion in course. The Bank of America deal is the largest transaction yet, reports The Wall Street Journal.
"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. 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," Melvin L. Watt, director of the FHFA, told Forbes.
Due to the housing recovery, Fannie Mae and Freddie Mac have become profitable now. As of December 2013, Freddie had already paid $71.3 billion, while Fannie returned $121.1 billion. The two government-backed mortgage giants announced in February that they will be paying the treasury another $7.2 billion by the end of March. The transaction will add up to $192 billion - far more than what they received in aid, reports Politico.
Meanwhile, plans to wind down the two lending bigwigs are still under government scrutiny. More recently, the Senate revealed a proposal outlining the terms of the closure.
