By  Fri Jan 10, 2014

Fannie, Freddie Settlements Rolling In

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As 2013 drew to a close, the Federal Housing Finance Agency (FHFA) stated how much money had been remitted to it on behalf of Fannie Mae and Freddie Mac. The money comes on the heels of a lawsuit filed in 2011 against a number of banks that have now settled with high amounts of money in an agreement with the agency.

The lawsuit alleged the banks sold risky mortgages and mortgage-backed securities to Fannie and Freddie although, in the settlement, the banks admitted to no wrongdoing. The amounts collected so far total over $7.5 billion.

The FHFA now is the regulating body over Fannie and Freddie in the wake of the collapse and it filed the suit as violations of several sections of the Securities Act of 1993 and other provisions of law. The original amount the agency sought was unspecified, but the claim was made that over $200 billion over mortgage investments were lost due to fraudulent practices.

The biggest of the settlements came in November when JP Morgan Chase agreed to pay $5.1 billion. Of that amount, $4 billion is designated as damages, and the additional $1.1 billion is slated to repurchase worth of mortgages. The allegations against JP Morgan were related to companies it had acquired after the collapse of the housing and financial markets in 2008. The mortgages being repurchased are said to not meet Fannie Mae or Freddie Mac standards, and were issued between 2000 and 2008.

The FHFA accused those companies acquired by JP Morgan, Bear Stearns and Washington Mutual, in addition to other defendants, of knowing their “representations were false and [were] willing to capitalize on [their] unique knowledge at the expense of investors.”

Staggering figures

The lawsuit named 18 banks, but so far, the agency has only disclosed the details of six of the banks named in the suit. The settlement money began rolling last year in January with General Electric Corp. paying $6.3 million over an alleged $549 million in securities. Citigroup followed by paying the smallest sum of the bunch, a $250 million amount over $3.5 billion in securities back in May 2013.

Another controversy in the proceedings surrounds JP Morgan’s claims that it had an agreement with the FDIC stating it was relieved of financial responsibility for damages by purchasing Washington Mutual. JP Morgan expressed interest in filing for a claim for repayment of the settlement money, but the FDIC said JP Morgan inherited Washington Mutual’s problems along with the purchase. In the settlement, the FHFA expressly forbade JP Morgan from making the claim against the insurer.

Deutsche Bank and UBS also reportedly paid substantial amounts in the terms of the settlement. UBS is reported to have paid $885 million over $6.4 billion in securities in July 2013, while Deutsche Bank shelled out a $1.93 billion in settlement money in December 2013 over $14.2 billion in securities. In October, Ally Financial spent $475 million in the settlement over $6 billion in securities.

More to come

The largest of the claims hasn’t been settled yet. Bank of America hasn’t reached an agreement with the FHFA, which is said to be seeking a whopping $6 billion from the massive bank and for an even more staggering loss of $57 billion in securities. Like JP Morgan, most of the troubled assets were acquired when the company took on Countrywide Financial and Merrill Lynch after the financial crisis began.

In June, a federal court in Manhattan will begin hearings related to the remaining cases.

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