Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report.

A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.

Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac.

B of A also paid $1.52 billion to Fannie Mae to resolve disputes on $3.1 billion in loans (~49 cents on the dollar). They remain liable for $2.1 billion in repurchase requests, as well as any future demands from Fannie Mae.

My biggest complaint about the GSEs post government takeover is that they have been used as a back door bailout of the banks. This latest deal reconfirms that view.

Its a wonder B o A didn’t rally further than the 6.7% it surged yesterday . . .


BofA Deal on Loan-Repurchase Demands Sets ‘Template’ for Banks 
Dawn Kopecki and Hugh Son
Bloomberg, January 4, 2011

See also:
Bank of America Buys Back $2.5 Billion in Mortgage Debt
NYT, JANUARY 3, 2011

Bank of America Pays for Soured Loans
WSJ, January 4, 2011

Category: Bailouts, Credit, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “BofA Freddie Mac Putbacks Resolved for 1¢ on $”

  1. Mike in Nola says:

    Should anyone be surprised? Who ultimately controls Fannie/Freddie? Who is in the pocket of the big bankers? Who is gonna get a nice fat job at a TBTF when he leaves the Treasury?

  2. tradeking13 says:

    Two words — Banana Republic.

  3. Moss says:

    Just another example of how the TBTF banks own the political, and legal system. Moral hazard at it’s finest. If Countrywide was not taken over by BOA they would be bankrupt. It is a total disgrace how the financial fraud has been protected by TPTB.

  4. dan10400 says:

    It would have never occurred to me that those in control at Fannie/Freddie would violate the trust and responsibilities to those who pay the bill (can’t say they are derelict to who they work for because it is obvious whose titteth they suck). I really hate this country sometimes.

  5. curbyourrisk says:

    And just why is Franklin Raines NOT IN JAIL??? Friend of Obama is the answer to that.

  6. Stuart says:

    The impunity of the TBTF banks, something to behold. Disgusting is what it is. Attorney Generals afraid to prosecute and now sweetheart deals with Freddie. Pretty clear who the constituents are of these bodies. Along time ago it used to be “We the People”. Not anymore.

  7. Mike, in H-town, makes a good point..

    Who was it, exactly, on the FRE-team, that “negotiated” that Deal?

    talk about your ‘Wash, Press & Fold’-Service..

    this guy has overlooked the GSEs

  8. b_thunder says:

    Timmy Geithner…. Whe we thought we’d seen everything, this so-called “public servant” (more correctly the “banking industry” servant) comes through one more time….. more brazen than ever!
    This takes “extend & pretend” to the level of “extend, pretend, and rob taxpayers by tens and hundreds of billions”
    I bet the next step is “Extend, pretend, rob the taxpayers, get $100mil payoff from BofA like “the mentor” Rubin did from Citi for the repeal of the Glass/Steagal Act”

  9. mark says:

    BR – Great stuff and keep at it. Maybe the useless POS’s in the MSM will pick up the story someday.

  10. not-affiliated-with-Wall Street says:

    Better deal than FED though, i.e. 0 cents on $.

  11. Pantmaker says:

    Wikileaks needs to drop their bank dump here soon.

  12. AHodge says:

    why add that “post govt takover” phrase?
    must have been that govt control that made FF bad?
    if you care to add to the giant catalogue of PRE govt takeover FF offenses

    FF are big shareholders in MERS
    and were present at the creation, strongly encouraging the birth of MERS.
    MERS was, and is, essential to their business model,
    meaning faking that mortgages are good quality “fixed income”

    you have a point
    that this is how they turn TARP into a costless bailout that paid itself back

  13. Stuart says:

    Little wonder Goolsby was so adamant about the need to raise the debt ceiling. He’s low. My wallet and my childrens’ wallets knows he’s low. SSDD.

  14. Julia Chestnut says:

    That’s outrageous – genuinely outrageous.

  15. super_trooper says:

    Who said there’s no free lunch?

  16. Mannwich says:

    So much fraud, so few (as in zero) criminal prosecutions. Just staggering.

  17. Mannwich says:

    And yet we’ll be told we “can’t afford” “entitlements” for the Sheeple. It’s truly beyond outrageous. Here’s a poll you won’t see much of in most U.S. MSM outlets:

    Top two things that Americans want to do to address the deficit is raise taxes on the rich and cut defense spending. Hhhhmm, are doing even remotely close to any such thing?

  18. Patrick Neid says:

    Now imagine there had never been any GSE’s as some had
    wanted back at their origins….Hmmm.

  19. Transor Z says:

    “Merry Christmas, you old Building & Loan!”

  20. rabbb says:

    $127b in LOANS, not $127b in LOSSES. So, assuming 60% of
    the loan balance can be recovered in the foreclosure process, that
    puts potential losses at $51b IF EVERY ONE OF THE COUNTRYWIDE LOANS
    GO DELINQUINT. Obviously they won’t. Using the MBA national
    foreclosure and delinquency rate of 13.5% the actual loss potential
    is likely around $7b. If the Countrywide loans are of poor quality
    i’ll say for fun its closer to 20%, but that puts losses still just
    at $10b. So while $3b is still a great deal for BofA and annoying
    as a tax payer, it isn’t exactly 1 cent on the dollar.

  21. Lugnut says:

    Is there no requirement of oversight of FRE by Congress in matters like this, where the taxpayers are being asked to shoulder 99% of the burden of bad private sector investments? Are there no checks and balances at Fannie to say ‘wait a sec, if the governement is backstopping our losses, are we able to legally and morally lump this onto j6PK at $.99 on the dollar??”

    Serious question.

    2nd serious question, why is no one throwing molotovs through the lobby windows at the BAC Corporate Center in Charlotte, and 3900 Wisconsin Ave in DC? This country is hopelessly asleep.

  22. “My biggest complaint about the GSEs post government takeover is that they have been used as a back door bailout of the banks. This latest deal reconfirms that view.”

    Really? Did you ever think the bailout of the GSE’s was anything other than a back-door bailout, of not just banks, but the entire residential housing industry, and the Fed, and the trade deficits? The GSE’s never mattered of themselves. They were a conduit through which the financial system, the residential mortgage system, and the international trade system laundered and funneled money.

  23. Mannwich says:

    @Lugnut: My only guess is that the slide downward is so slow that most think they’ll escape having to sacrifice anything. Once reality dawns that most of the Sheeple will not be spared, and many will be crushed by our leaders’ corruption, selfishness, and criminality, that’s when this thing will explode. It’s a slow motion slide for most. I think that’s not an accident either.

  24. Stuart says:

    @Lugnut: that would probably change if private pension plans started being seized, much like is happening in Europe. Wait for it.

  25. Mannwich says:

    @Stuart: I think it starts to simmer with public pension plans when many realize they’re not getting anywhere close to what they were promised. It will be a super slow motion slide for most.

  26. louis says:

    Wait a minute, Isn’t this morally wrong?

  27. DeDude says:

    I am with rabbb on this. Your “1 cent on the dollar” is absolutely manipulative BS. I suspect the deal is not in favor of Freddie but the end result is not going to be anywhere close to that kind of loss. A lot more information is needed before anybody can make a judgement on exactly how good or bad the deal is, but a loss of 100% on 100% of the loans is not going to happen.

  28. AHodge says:

    Thinkin there is something fishy here.
    Why do FF even bother to make a reps and warranties claim against B of A etc for badly made, documents missing, or not “conforming” loans.
    if you going to give it “all” back?

    are they clearing up its FF that on the hook, not the mortgage insurers, pool insurers?

  29. DeDude says:

    GSE’s were always on the hook for any loan that was not “misrepresented”. The outstanding total of loans they think they could send back to lenders is about 10 billion. They will likely lose more than that, but that was always going to be their own loss, not something they could send back to the lenders. The mortgage insurance companies are probably going to be asked to cover some of those loses.

  30. Lord says:

    I doubt there are any claims on anything prior to 2002 and
    even if prices fall further, probably not any before 2000, so the
    question is how much of the backlog has already been processed and
    whether this is a reasonable estimate of those outstanding. I
    expect their biggest losses have been through all those failing
    banks for which they have no recourse. Still this is piddly
    compared to their realized losses.

  31. rktbrkr says:

    Is Turbo Tim a Republic secret agent?

    TT to O’B; “Hey Boss i have a terrific idea that will transfer most blame for the banks bad behavior to Democrat created F&F and 99% of the cost to the taxpayers, we should do this right at year end when everybody is distracted by the holidays too”
    O’B to TT: “Right on my sweet talkin Turbo-man”

  32. bman says:

    So, when does the dictator step in?

    There are so many broken promises, why shouldn’t city of NY sanitation workers feel disapointed with their lot in life?

  33. FrancoisT says:

    The lesson for anyone who has money to invest is now crystal clear; don’t ever do business with the TBTF US banks. The powers that be, regulators, politicians and law enforcement have their backs covered, and then some.

    To all investors worldwide: Stay away if you value your wealth!

  34. FrancoisT says:

    rabbb wrote:

    “So, assuming 60% of the loan balance can be recovered in the foreclosure process”

    Isn’t it a very generous assumption?

    “Using the MBA national foreclosure and delinquency rate of 13.5%”

    Like…Countrywide loans can be modeled to the national average? Hmmmmm!

    Somehow, I would be tempted to err on the side of pessimism here.

  35. KentWillard says:

    Fannie & Freddie are paid a portion of the mortgage interest rate to assume the credit loss in case the loan defaults. This guarantee payment in essence comes out of the loan’s value when the lender sold it. In other words, the lenders paid Fannie & Freddie to take the credit risk. The exception is when lenders violate representations & warranties of their contract with Fannie & Freddie. That could mean the lender violated servicing terms or underwriting eligibility, but it usually means the lender or borrower lied about the terms of the loan (i.e. fraud on income, assets, house value, occupancy, debts, etc.). If the borrower makes payments for more than two years it gets harder to prove that the default was because of fraud, and the weight of evidence leans more to job loss, the economy, etc.

    Fannie and Freddie review defaults and look for evidence of fraud, particularly on foreclosures with unusually large losses or high risk factors. By now, Fannie & Freddie may have reviewed quite a bit of Countrywide/BofA defaults that made few payments. They could have a pretty good idea of the eventual fraud loss. When a lender settles on defaults, they can either repurchase the mortgage or pay Fannie/Freddie whatever the loss was. Most defaults don’t lose 100% on the dollar. Maybe 50, 60, 70, or even 80%. But there is typically some value that can be recovered from the sale of the house.

    Bottom line, the settlement may not be that outrageous. We don’t have the details to know. Unfortunately most people have no understanding what the terms or process even is. But if you just want to be outraged, then knock yourself out.

  36. [...] I have to disagree with a post Barry had yesterday over a settlement between Bank of America and Freddie Mac.  The posts [...]

  37. marksf says:

    I echo what rabbb said. It reminds me why I don’t read this blog very often.

  38. [...] noted earlier this week, the one cent on the dollar Bank of America/Freddie Mac settlement was a huge potential windfall for the bank, and a royal screwing for [...]

  39. [...] BofA Freddie Mac Putbacks Resolved for 1¢ on $ (The Big Picture): Bank of America settled numerous claims with Fannie Mae for an astonishingly [...]

  40. [...] – in the US, the banking system has become even more concentrated and as it were, a 'bailout through the backdoor' via the GSE's continues to be underway. Treasury secretary Geithner is fond of telling the lie that the bank [...]

  41. mikegordon2 says:

    Set a good example. Your “quote of the day” should include a citation to the source. Too many quotes these days are apocryphal or just plain made up.


    BR: I just quickly scrolled thru 1100 quotes — everyone I looked at had an author citation.

    Speaking of unsourced bullshit: Was there a particular quote that was without author?

  42. [...] I mentioned this past week that I thought that Bank of America got a steal at the expense of the taxpayers: They resolved their Freddie Mac put backs for a mere one cent on the dollar (1¢ on the  $). [...]

  43. Alan Zibel says:

    US House Democrats Question Mortgage Buyback Terms

    WASHINGTON (Dow Jones)–Four U.S. House Democrats are raising questions about whether taxpayers are getting enough compensation for bad loans sold to Fannie Mae (FNMA) and Freddie Mac (FMCC).

    The two government-controlled mortgage companies have recovered $3.3 billion for taxpayers by reaching settlements in recent weeks with Bank of America Corp. (BAC) and Ally Financial Inc.

    Rep. Maxine Waters (D., Calif.) questioned in a letter dated last Friday whether the settlements with those two companies “represent the real liability [Fannie and Freddie] bear as a result of the misrepresentations and breaches of warranty” made by Bank of America and Ally Financial. The letter was released Tuesday by Waters’s office.

    Waters wrote the letter to Edward DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie. Joining Waters were three fellow members of the House Financial Services Committee, Reps. Brad Miller (D., N.C.), Keith Ellison, (D., Minn.) and Stephen Lynch, (D., Mass.).

    “We request detailed information on how FHFA determined that the combined $3.3 billion settlement represented the best possible recovery of funds available to taxpayers,” the lawmakers wrote.

    A spokeswoman for the FHFA said the agency will respond to the letter.

    Bank of America agreed last week to pay $2.8 billion to Fannie Mae and Freddie Mac to buy back soured mortgages. In late December, Ally Financial agreed to pay Fannie $462 million to cover repurchase requests related to its mortgage unit.

  44. [...] Talks Louder Than Ever (October 2010) Too Bad Banks Missed Out On the GM Treatment (November 2010) BofA Freddie Mac Putbacks Resolved for 1¢ on $ (January 2011) PERMALINK Category: Bailouts, Politics, Really, really bad [...]