Bank of America will dole out $9.33 billion for a settlement which was reached between Bank of America and the Federal Housing Finance Agency (the regulator of Fannie Mae and Freddie Mac) on Wednesday, March 26, regarding the dispute over mortgage backed securities. This settlement is the result of allegations of fraudulent reporting associated with the sale of mortgage securities by Bank of America to Fannie Mae and Freddie Mac late last year and is also more than ten times as much as what was recommended by the U.S. Department of Justice (DoJ).
“The reckless behavior of banks and lenders during the mortgage crisis put the nation’s financial system in turmoil,” commented Peter Mougey, a partner with the Levin, Papantonio law firm and director of the firm’s business torts and securities litigation departments. “This settlement is just one instance of a bank being called to task for its abuse of its clients.”
With Fannie Mae and Freddie Mac owning or guaranteeing nearly half of all mortgages in the United States, they play a major role in the housing market. Over the past four years, Fannie Mae has enabled the purchase of over 3 million homes. Freddie Mac also helps make buying a house possible for nearly one in four homebuyers.
These agencies are able to do that by purchasing mortgages and restructuring them as bonds to sell to investors. This allows for more funds to be available to homebuyers who have low to moderate incomes.
The fraud that Bank of America knowingly participated caused Fannie Mae and Freddie Mac to lose $848.2 million and could have created serious problems for these two organizations, which then could have caused serious problems within the housing market. Additionally, it hurts those Americans who would otherwise be unable to purchase or rent homes because of their lower income levels.
Ultimately, the $9.33 billion that Bank of America will repay will be broken down into payments of $6.3 billion directly to the FHFA as well as purchasing back over $3 billion worth of securities from Fannie Mae and Freddie Mac that were affected by the fraud.
The payouts from Bank of America to the FHFA should help to rectify the situation that they created by selling the fraudulent securities. This by no means clears Bank of America of their wrongdoing, but it is a start. This settlement will also help Fannie Mae and Freddie Mac reverse some of the damages that were caused by the faulty loans.
While this is a large settlement, and more than ten times what was recommended by the DoJ, it still does not come close to the damages and losses that homeowners have seen from the fraudulent activities of Bank of America and other Wall Street companies.
Meg is a writer and researcher with Ring of Fire.
