After months of back and forth, Bank of America and Fannie Mae are finally sitting down to hash out whether or not the bank will buy back bad mortgages that are currently resting on the government agency’s shoulders. Both sides have danced around the topic for months, and now, finally, the two have emerged with a common goal – even if neither side is overly hopeful for a beneficial outcome.
Before the mortgage crisis of 2008, there were hundreds of thousands of mortgages that were sold to Fannie Mae by both Countrywide Financial and Bank of America. Of course, by the end of 2008, the writing was on the wall and before long, Fannie and Freddie Mac were stuck with these bad subprime mortgages.
Bank of America remained adamant in its declarations that it would not be buying back any of those mortgages. Fannie Mae wants the bank to purchase those loans held by borrowers who made payments for more than two years or whose mortgages went bad more than a year-and-a-half earlier.
Bank of America told regulators earlier this week that it was again in talks with Fannie Mae with the goal of “address (ing) our ongoing differences.” It’s believed there is more than $10 billion at stake and more than $7 billion related to loans in which the borrowers had been paying for more than two years. In its filing, it said,
We continue to believe that our interpretation of the governing contracts is consistent with past practices between the parties and our contractual obligations.
Fannie Mae Rules
Many aren’t aware, but Fannie Mae can opt to not buy any loans and in January 2012, that’s exactly what happened. It decided not to renew its contract with the bank to buy any of its mortgages. Freddie Mac, on the other hand, is still buying mortgages from Bank of America.
In July, during a routine earnings conference, BoA CFO Bruce Thompson said one of two things would happen – they’d either settle or they’d find themselves in court.
Now, Bank of America is facing new worries – much the same as Capital One Financial recently settled. BoA says it’s been approached with questions from regulatory authorities regarding various services offered to customers. Those services include identity theft protection through third party vendors that many of its mortgage and credit card customers pay for, but never see when they need it. This is the same problem Capital One faced and was forced by both banking regulators and CFPB to pay more than $2 million in fees.
One aspect of the problem that BoA is facing that its counterpart didn’t is whether or not the bank was even aware of what those third party vendors were – or in this case, were not – doing. The bank says it’s cooperating with the investigation.
As if that weren’t bad enough, BoA also reported today that it paid part of a $7.25 billion settlement that credit card companies and banks reached with retailers in July. This was part of the alleged fixing of credit card and debit card fees. Of the bank’s $738 million total, $539 million will come from an escrow fund set up by card company Visa Inc with the rest coming in the form of a cash payment by MasterCard.
Bank of America has far more Fannie Mae mortgage repurchase requests than any other bank in the U.S.. As of March 31, and according to Fannie Mae’s quarterly securities filing, it accounted for 58 percent of the total. JPMorgan Chase comes in second with 10 percent.
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