Bank of America and Freddie Mac Finally Make Peace

Big banks have been falling over themselves lately in an effort to settle outstanding claims by U.S. government agencies regarding crummy mortgages they sold to Fannie Mae and Freddie Mac back in the salad days of subprime mortgage-making.

Fannie and Freddie on the offensive
Both government-sponsored entities became increasingly prickly last year over the poor quality of these loans, and began pressing banks in earnest last year to repurchase the worst of them. Sometimes, the disputes got ugly, as Bank of America can attest to: After a protracted row over repurchase demands, the bank decided in early 2012 not to deal with Fannie Mae anymore, and dealt only with Freddie Mac thereafter.

Bank of America finally settled with Fannie in January of this year, forking over more than $10 billion to resolve a spat regarding mortgages sold to the GSE by Countrywide prior to 2008. Today, the bank announced a deal with Freddie Mac, as well -- paying $404 million to retire claims concerning mortgages sold by Countrywide through 2009.


This has been a banner settlement year for the GSEs, as both Fannie and Freddie have kept busy extracting large payments from big banks over toxic legacy mortgage products. In September, Citigroup paid Freddie $395 million to put paid to its own crisis-era excesses, after paying Fannie $968 in July for selling the agency similar bad-quality loans. Wells Fargo paid Freddie $869 million shortly after Citi settled, and JPMorgan Chase just recently paid out $5.1 billion to both GSEs for its own involvement in the sale of lousy mortgages inherited from acquisitions Bear Stearns and Washington Mutual.

Another quarrel settled, but how many more?
Investors can breathe easier now that this issue is settled, as it resolves Bank of America's extensive squabble with the GSEs and therefore has a satisfying ring of finality. The problems with the GSEs were a distraction, and the bank is to be commended for taking this final step to settle the still-simmering issues.

Adding to the sense of relief is the relatively small payout, which Bank of America assures investors is covered by existing reserves. 

Bank of America's mortgage-related troubles are far from over, though, as the bank still faces one of its biggest MBS-related settlement debacles: the pending court decision on the Gibbs & Bruns settlement, an $8.5 billion deal struck with 22 institutional investors back in 2011 over 530 mortgage trusts gone bad.

If the settlement is found to be solid, Bank of America will be able to settle up, finally, and move on. If the court finds that the deal was struck to the detriment of the investors, the bank will face another set of unknowns - particularly the amount that it will have to pay to settle this large-scale issue, which will surely be much more than the previously agreed upon, and budgeted, sum.

Even more premium stock picks
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

The article Bank of America and Freddie Mac Finally Make Peace originally appeared on Fool.com.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

What is Short Selling?

Make a profit when stocks prices fall.

View Course »

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
bps163

Bank of America cut good deal for themselves. Fannie on the other hand, along with Freddie was left at the table, looking like children at the game of big finance. The other party that does well in this deal is the government they come out looking like fatcats and the small investor get's bent over the table. Once again.This is starting to look comical.

December 02 2013 at 12:52 PM Report abuse rate up rate down Reply