Bank of America has come to a settlement with Federal Housing Finance Agency as the latter filed a lawsuit on behalf of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. Bank of America agreed to pay $9.5 billion fine to them.
Federal Housing Finance is a regulatory agency and it has the legal right to sue an individual/agency on behalf of government-sponsored mortgage finance firms. The claim against Bank of America was that it intentionally misrepresented the value of residential mortgage-backed securities which led to financing related crisis.
The actual worth of the mortgage securities was $57.5 billion. The settlement requires Bank of America to pay $6.3 billion in cash to Fannie Mae and Freddie Mac and purchase back $3.2 billion worth of mortgage securities. Bank of America held the settlement responsible for the reduction of its first-quarter income by $3.7 billion before paying taxes. On April 16, the bank will report its earning. The settlement is one of many other recent ones where the regulatory agency summoned banks which sold low-quality subprime mortgages during the recession. Total of $16 billion has been recaptured by the regulatory agency those banks and financial institutions. Fannie Mae and Freddie Mac were under conservatorship since 2008. Then they were seized by the regulatory authorities because they were undergoing heavy loss due to subprime loans. Before this settlement, there were nine other settlements where the Federal Housing Finance Agency filed a lawsuit against banks and financial firms. It started in 2011 when the total of 18 lawsuits was filed for more than $200 billion in mortgage securities. Mel Watt, the director of Federal Housing Finance Agency said, “FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement…” Albeit the amount of fine is huge, no executive at the Bank of America is facing any criminal charge. A mortgage originator called Countrywide Financial was purchased in 2008 by Bank of America for $4.1 billion. It was responsible for many of Bank of America’s problems. No criminal charges were, however, produced against it by FHFA. A representative of FHFA said the government wants to punish the big banks by imposing penalties, not by putting their executives behind the bar.