Law Suits & Courts

GSEs Settle Buy Back Claims with BoA, Other Banks

Posted on Friday, January 7, 2011

WASHINGTON, DC-Bank of America has settled demands from Fannie Mae and Freddie Mac that it buy back mortgage loans that the GSEs said were sold and repackaged based on faulty data. The $2.8-billion settlement will relieve some pressure of Bank of America's balance sheet, as well as its stock price, which rose as much as 5.6% after the deal was announced. Other lenders that have reached similar agreements with the GSEs are JP Morgan and Ally Financial.
However, Bank of America's woes are not over. Only half of the $12.9 billion in buy back demands it is facing were from the government entities and the bank has only reserved about $4 billion for this issue.
Nonetheless, BoA's settlement will likely lead to other institutions reaching similar agreements with the GSEs, Sam Chandan, global chief economist and executive vice president with Real Capital Analytics, tells As a result, the GSEs are able to recoup additional monies from residential mortgage lenders. Indeed, the greater impact of the settlements may be in emboldening other parties, including bond insurers, money managers and other private investors, whose claims against banks could dwarf the GSE settlements, he says.
Regardless of how much money the GSEs are able to recoup or whether they are perceived as the instrument by which some retribution for the financial crisis was finally meted out, their ultimate fate will be unaffected, Chandan says. "While this will benefit taxpayers who currently support the GSEs through the conservatorship arrangement, the claims settlements are unlikely to impact the broader policy discussion regarding the GSEs' role in the mortgage market."
By Erika Morphy

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