Fannie Mae’s regulator should provide information on whether $3.3 billion in settlements with Bank of America and Ally Financial over faulty mortgages were fair deals for taxpayers, U.S. lawmakers said.
There should be clarity on whether banks’ payments to Fannie Mae and Freddie Mac “represent the real liability the enterprises bear” on the soured loans, four lawmakers including Rep. Brad Miller wrote in a Jan. 7 letter to acting director of the Federal Housing Finance Agency (FHFA). Miller is a Democrat from North Carolina, where Charlotte-based Bank of America has headquarters.
“We request detailed information on how FHFA determined that the combined $3.3 billion settlement represented the best possible recovery of funds,” Miller wrote. “The agreements reached between the enterprises and these counterparties may set an important precedent for other negotiations.”
The settlements resolved some disputes between mortgage-financing firms owned by the U.S., Fannie Mae and Freddie Mac, and banks that have received taxpayer funds to stabilize the financial system. Fannie Mae and Freddie Mac have demanded that banks that created loans based on incorrect data about the home or borrower should repurchase the mortgages.
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The lawmakers requested a response by Jan. 24. Corinne Russell, a spokeswoman for FHFA, said the regulator received their letter and intended to respond.
“I’m not convinced it’s not a reasonable settlement,” Miller said Wednesday. “I’m just inquiring about what their assessment was of the money that led them to agree to this. We at least should have a discussion about it because we’re talking about taxpayer money here.”
Bank of America said Jan. 3 that it paid $1.5 billion to Fannie Mae to end claims on $4 billion of loans and $1.3 billion to Freddie Mac to resolve or preclude claims on $127 billion in mortgages. The bank repaid its $45 billion U.S. bailout in 2009. Detroit-based Ally, which is majority owned by the government, said Dec. 27 it agreed to pay $462 million to settle repurchase demands from Fannie Mae linked to $292 billion in home loans.
Fannie Mae and Freddie Mac, created by Congress to boost U.S. homeownership by buying mortgages, were seized in September 2008. With more than $150 billion in taxpayer funds already spent on bailing out the two firms, lawmakers pressed them to shift more of the burden back to the banks that created the defective loans.
Rep. Maxine Waters said earlier this month that the Bank of America deals may have been “a backdoor bailout that props up the bank at the expense of taxpayers.” The California Democrat also signed the Jan. 7 letter, along with Reps. Stephen Lynch, of Massachusetts, and Keith Ellison, of Minnesota.
Fannie Mae Chief Executive Michael Williams said in a Jan. 3 statement that the Bank of America deals were “a fair and responsible resolution.” The lender said the agreements and a $3 billion fourth-quarter provision “largely addressed” liabilities from Fannie Mae and based Freddie Mac.
The settlements resolve loan disputes “in a fair and responsible manner, while taking a step toward the ultimate recovery of the housing market,” Rick Simon, a spokesman for Bank of America, said in an e-mail Wednesday. “By putting these issues behind us, we can increase our focus on serving customers and helping distressed homeowners.”
Gina Proia, a spokeswoman for Ally, declined to comment.