Govt. Watchdog Says Freddie Mac Settled 'Too Cheaply' With Bank Of America, Taxpayers On The Hook For More Losses
Anyone surprised? Under current policy, Fannie and Freddie exist and function solely to absolve TBTF banks of liability and fraudulent assets.
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WASHINGTON — Freddie Mac employed a faulty analysis when the government-owned firm struck a deal to receive $1.4 billion from Bank of America Corp. as part of a settlement over problem mortgages it purchased from the big bank, according to a watchdog report released Tuesday.
The settlement was over claims that Bank of America misrepresented the quality of home loans its acquired Countrywide Financial sold to Freddie Mac between 2005 and 2007. The deal covered 787,000 loans with a total unpaid principal balance of $127 billion, the bank noted at the time.
The inspector general for the Federal Housing Finance Agency, the regulator for Freddie Mac and Fannie Mae, on Tuesday said an FHFA senior examiner “raised serious concerns” about the settlement with Bank of America, which was agreed to in December. The mortgage buyer’s own internal auditors in 2010 also identified concerns about the loan review process.
It added that FHFA senior management may have inaccurately estimated the risk of loss to Freddie Mac and that the issue could “potentially involve substantial losses to Freddie Mac.” Already Freddie Mac and Fannie Mac have cost taxpayers some $130 billion.
For example, the loan sample used by management in crafting the deal was drawn from all sellers and not just Countrywide — “which was among the most aggressive originators of higher-risk, non-traditional loans and whose loans had significantly above-average numbers of defects subject to repurchase claims,” according to the inspector-general’s report.
Freddie Mac management, according to a memorandum, made a deliberate decision not to change sampling procedures in order to maintain relationships with loan sellers such as Bank of America.
The report did note that FHFA suspended future settlements premised on the Freddie Mac loan review process.
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Complete history of the Fannie & Freddie disaster...
Video - Former Fannie Chief Credit Officer Edward Pinto
Sep 27, 2011 at 12:40 PM
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