Many of the nation’s largest mortgage lenders have been involved in settlements related to potentially unfair or misleading origination or foreclosure practices prior to and during the housing meltdown. That trend continued this week thanks to a deal between Bank of America and the government-sponsored enterprise Fannie Mae.
The two sides reached a resolution that will see Bank of America pay $10.3 billion on existing and prospective repurchase requests, as well as an additional payment of $1.3 billion stemming from servicing issues its practices caused, according to a report from Fannie Mae. All loans issued between January 1, 2000, and December 31, 2008, and which had an outstanding unpaid principal as of November 30, 2012, are covered by the deal, and these loans alone carry a total value of $297 billion.
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Further, Bank of America will buy back about 30,000 loans that are considered at risk for causing future harm to Fannie’s book of business, the report said. Bank of America will also pay par plus accrued interest, which will cause Fannie’s outstanding repurchase requests to slide significantly for the first quarter of 2013.
“A favorable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers,” said Bradley Lerman, executive vice president and general counsel of Fannie Mae. “Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests.”
Bank of America will still be liable for all repurchase obligations that come as a result of these loans, as well as servicing and indemnification costs, and those related to mortgage insurance, the report said. Further, Fannie will need to approve a request for Bank of America to transfer some 941,000 more loans it was servicing to smaller agencies as a means of mitigating potential losses on loans that are considered high-risk.
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Many lenders have come under the microscope of various organizations related to the ways in which they approved subprime borrowers for home loans that the institutions knew they could not afford, which in turn led to massive amounts of delinquency, default and, eventually, foreclosures and repossessions.
Image: Jon Feinstein, via Flickr