The deal with Fannie Mae is not airtight; it leaves open the possibility that Fannie could pursue additional claims against Bank of America. In contrast, the settlement with Freddie Mac closes the book on pending and potential claims.
Inside I've also included an update on Ally's (GMAC) settlement last week with Fannie, and the status of MBIA's lawsuit against Bank of America.
---
Bank of America settles with Fannie, Freddie
Fannie Mae and Freddie Mac, the financial giants whose failed mortgage investments made them wards of the government, have accepted $2.8 billion from Bank of America to largely put to rest claims that the bank sold them faulty loans.
The cost to Bank of America was less than the potential blow some investors had expected, and the bank's stock rose 6.4 percent on the news Monday.
For Bank of America, the settlements eliminate "a doomsday scenario," said analyst Paul Miller of FBR Capital Markets.
The deal with Fannie Mae is not airtight; it leaves open the possibility that Fannie could pursue additional claims against Bank of America. In contrast, the settlement with Freddie Mac essentially closes the book on pending and potential claims.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, approved the settlements. In a statement, the agency said the deals were "consistent with market practice and FHFA's conservatorship responsibilities."
Fannie spokeswoman Janis Smith called it a "fair and responsible resolution."
At issue is one of the biggest threats facing Bank of America and other major lenders that weathered the financial crisis with help from the government.
During the housing bubble, the banks typically sold mortgages to investors around the world, including Fannie Mae and Freddie Mac. But those investors were generally entitled to repayment by the lenders if the loans were sold on the basis of false assurances.
Stocks of major banks swooned last year when the market was gripped by fears that banks could be on the hook for huge sums.
Bank of America's acquisition of one of the biggest issuers of troubled loans, Countrywide Financial, has left it especially vulnerable.
In October, a group of investors including the Federal Reserve Bank of New York, Pacific Investment Management and BlackRock, wrote to Bank of America signaling that they might try force repayment on pools of Countrywide mortgages totaling more than $47 billion. That dispute remains unresolved.
---
Bank of America hit with setback in MBIA mortgage liability lawsuit
Bank of America's hangover from the housing bubble could be harder to shake in the new year as a result of a recent court decision.
The bank lost a major procedural ruling in a lawsuit over its liability for allegedly toxic mortgages. The ruling will make it harder for the bank to defend itself in that case, and it could set a standard for similar disputes.
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/31/AR2010123101728.html
---
Ally Financial in $462 million settlement with Fannie
(Reuters) - Ally Financial Inc, the lender formerly known as GMAC, on Monday said it agreed to pay $462 million to Fannie Mae to avoid having to repurchase poorly underwritten mortgages sold to the housing finance giant.
Ally, which is majority-owned by U.S. taxpayers, said the agreement releases its Residential Capital LLC mortgage unit from any liability related to bad underwriting on $292 billion worth of loans sold to Fannie Mae, itself about 80 percent owned by the government.
http://www.reuters.com/article/idUSTRE6BQ3OA20101227
---