FHFA has reportedly sought $6 billion from Bank of America Corp (NYSE:BAC) for settlement of claims that the bank has willfully sold RMBS to Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
Recently JPMorgan Chase & Co. (NYSE:JPM) has reached a tentative agreement to pay a record $13 billion fine to the Justice Department to settle probes into its residential mortgage-backed securities. If finalized, $4 billion would settle allegations by the FHFA that JPMorgan overstated the quality of the mortgages it sold to the government-sponsored housing finance enterprises Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
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FHFA sued Bank of America
U.S. mortgage watchdog Federal Housing Finance Agency sued Bank of America and 17 other firms over faulty mortgage bonds two years ago as part of its effort to recoup some of the losses that taxpayers shelled out to bail out failing mortgage finance companies. FHFA is the regulator for Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). The two finance companies have received $187.5 billion in federal aid since the financial crisis broke out.
Bank of America has biggest exposure
Tom Braithwaite, Kara Scannell, Camilla Hall, and Gina Chon of Financial Times report Bank of America has the biggest exposure when selling the mortgage-backed securities to Fannie Mae and Freddie Mac, with a notional value of over $57 billion compared to $33 billion by JPMorgan Chase & Co. (NYSE:JPM). While Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS) has a $33 billion notional exposure, smaller claims exist against Credit Suisse AG (NYSE:CS), Goldman Sachs Group Inc (NYSE:GS) and Barclays PLC (NYSE:BCS) (LON:BARC).
Financial Times reporters citing known sources feel the biggest banks will end up with large, sweeping settlements similar to that just agreed to by J.P. Morgan.
Bank of America has major exposure after its 2008 purchases of troubled mortgage lender Countrywide Financial Corp. and securities firm Merrill Lynch & Co. Analysts Devlin Barrett, Dan Fitzpatrick, Shayndi Raice and Saabira Chaudhuri of The Wall Street Journal report that the government’s aggressive pursuit of JPMorgan Chase & Co. (NYSE:JPM) will only make it less likely that future bank chiefs assist the U.S. in times of crisis. Analysts believe JPMorgan is now paying for a slew of mortgage problems with its 2008 purchases of Bear Stearns Cos and WMI Holdings Corp (OTCMKTS:WAMUQ), both of which were done at the insistence of U.S. regulators.