Bank of America Corp (NYSE:BAC) said it reached a $404 million settlement with Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to resolve claims stemming from residential mortgage loans the bank sold to Freddie.
The second-biggest U.S. lender announced it settled all claims with Freddie Mac arising from residential mortgages sold to the government-backed housing agency through the end of 2009.
Follow-up to last month’s $863 million deal
Earlier, a federal jury concluded that Bank of America Corp (NYSE:BAC) defrauded mortgage finance firms Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) with a lending program that fast-tracked mortgages ahead of the housing bust. The lending program was created by Countrywide, once a giant in subprime mortgages, prior to its 2008 acquisition by Bank of America.
According to Fred Prouser of Reuters, today’s $404 million settlement follows last month’s $863.6 million in damages awarded by the U.S. government, after the above-mentioned decision by the federal jury.
Settlement to resolve all claims from 2000 to 2009
Bank of America Corp (NYSE:BAC)’s $404 million settlement with Freddie Mac would resolve all outstanding and potential mortgage repurchase and other claims related to loans sold to Freddie from 2000 to 2009, besides compensating Freddie for some past losses and potential future losses.
Bank of America indicated the payments are fully covered by existing reserves.
Federal filings reveal Freddie had $1.4 billion in Bank of America Corp (NYSE:BAC) repurchase demands as of September 30. This signifies the largest for any bank. The amount represents around 42% of all of Freddie’s outstanding repurchase demands.
Today’s deal is the second such agreement between Bank of America Corp (NYSE:BAC) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) since 2011. In January 2011, Bank of America agreed to a $1.35 billion settlement with Freddie Mac.
Bank of America’s settlements with Fannie Mae
Bank of America also reached two such settlements with Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s larger sibling, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) since 2011, including $11.6 billion settlement earlier this year.
Last year, President Barack Obama created a task force to coordinate investigations regarding improper mortgage-bond transactions by banks. The six largest banks in the country incurred more than $100 billion in legal costs, which is more than the dividends paid to shareholders over the past five years since the credit crisis.