Fannie Regulator Asked to Justify BofA, Ally Deals

Fannie Mae’s regulator should provide information on whether $3.3 billion in settlements with Bank of America Corp. and Ally Financial Inc. over faulty mortgages were fair deals for taxpayers, U.S. lawmakers said.

There should be clarity on whether banks’ payments to Fannie Mae and Freddie Mac “represent the real liability the enterprises bear” on the soured loans, four lawmakers including Representative Brad Miller wrote in a Jan. 7 letter to acting director of the Federal Housing Finance Agency. Miller is a Democrat from North Carolina, where Charlotte-based Bank of America has headquarters.

“We request detailed information on how FHFA determined that the combined $3.3 billion settlement represented the best possible recovery of funds,” Miller wrote. “The agreements reached between the enterprises and these counterparties may set an important precedent for other negotiations.”

The settlements resolved some disputes between mortgage- financing firms owned by the U.S., Fannie Mae and Freddie Mac, and banks that have received taxpayer funds to stabilize the financial system. Fannie Mae and Freddie Mac have demanded that banks that created loans based on incorrect data about the home or borrower should repurchase the mortgages.

The lawmakers requested a response by Jan. 24. Corinne Russell, a spokeswoman for Washington-based FHFA, said the regulator received their letter and intended to respond.

“I’m not convinced it’s not a reasonable settlement,” Miller said today in an interview. “I’m just inquiring about what their assessment was of the money that led them to agree to this. We at least should have a discussion about it because we’re talking about taxpayer money here.”

Fannie, Freddie Payments

Bank of America said Jan. 3 that it paid $1.5 billion to Fannie Mae to end claims on $4 billion of loans and $1.3 billion to Freddie Mac to resolve or preclude claims on $127 billion in mortgages. The bank repaid its $45 billion U.S. bailout in 2009. Detroit-based Ally, which is majority owned by the government, said Dec. 27 it agreed to pay $462 million to settle repurchase demands from Fannie Mae linked to $292 billion in home loans.

Fannie Mae and Freddie Mac, created by Congress to boost U.S. homeownership by buying mortgages, were seized in September 2008. With more than $150 billion in taxpayer funds already spent on bailing out the two firms, lawmakers pressed them to shift more of the burden back to the banks that created the defective loans.

‘Backdoor Bailout’

Representative Maxine Waters said earlier this month that the Bank of America deals may have been “a backdoor bailout that props up the bank at the expense of taxpayers.” The California Democrat also signed the Jan. 7 letter, along with Representatives Stephen Lynch of Massachusetts and Keith Ellison of Minnesota.

Fannie Mae Chief Executive Officer Michael Williams said in a Jan. 3 statement that the Bank of America deals were “a fair and responsible resolution.” The lender said the agreements and a $3 billion fourth-quarter provision “largely addressed” liabilities from Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac.

The settlements resolve loan disputes “in a fair and responsible manner, while taking a step toward the ultimate recovery of the housing market,” Rick Simon, a spokesman for Bank of America, said in an e-mail today. “By putting these issues behind us, we can increase our focus on serving customers and helping distressed homeowners.” Gina Proia, a spokeswoman for Ally, declined to comment.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Representative Brad Miller

Brendan Hoffman/Bloomberg

Representative Brad Miller, a Democrat from North Carolina.

Representative Brad Miller, a Democrat from North Carolina. Photographer: Brendan Hoffman/Bloomberg

Jan. 3 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, will take a $2 billion impairment charge and a $3 billion provision in the fourth quarter to resolve mortgage-repurchase claims by Freddie Mac and Fannie Mae. Bloomberg's Erik Schatzker reports. (Source: Bloomberg)