Bank of America buys back bad loans from Fannie, Freddie

by Vicki Needham - 01/03/11 4:42 PM ET

Freddie Mac and Fannie Mae have been pushing for mortgage lenders to buy back faulty loans that went sour after finding they didn’t conform to their lending guidelines, riddling their portfolios with losses. The two mortgage giants have been held under federal conservatorship since September 2008 and have received about $134 billion in taxpayer money so far to continue operating.

Fannie also reached a $462 million settlement with Ally Financial Inc. last week to cover potential repurchases on $292 billion in mortgages.

“Combined, the agreements provide $3.3 billion in recovery to the Enterprises and, thereby, to taxpayers,” said Edward DeMarco, acting director of Federal Housing Finance Agency, in a statement. “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.”

Incoming House Financial Services Chairman Spencer Bachus (R-Ala.) has said his top priority is “to end the taxpayer-funded bailout of Fannie and Freddie.”

The Bank of America agreement with Freddie Mac provides for a $1.28 billion cash payment to resolve claims from 787,000 loans — with a total unpaid principal balance of $127 billion — sold through 2008 by “legacy” Countrywide Financial, the Charlotte, N.C.-bank said in a statement. Bank of America also agreed to pay $1.34 billion in cash to Fannie Mae, after applying credits to an agreed-upon settlement of $1.52 billion.

Both payments were made Friday, the company said.

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

Bank of America purchased Countrywide in 2008 and has been dealing with growing losses after many of its loans went sour.

The agreements don’t cover loan servicing obligations, other contractual obligations or loans contained in private label securitizations.

Officials with the Federal Housing Finance Agency, which regulates Fannie and Freddie, praised the deal, but said more work remains to be done.

“While these agreements are an important step, the [GSEs] have other outstanding claims across a range of counterparties and they are being pursued,” said Edward DeMarco, acting FHFA director.

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