Wells Fargo in $869 Million Settlement With Freddie Mac

Wells Fargo & Co. (WFC), the largest U.S. home lender, agreed to an $869 million settlement with Freddie Mac to resolve disputes over faulty loans sold to the government-backed firm before Jan. 1, 2009.

The accord includes a one-time $780 million cash payment to Freddie Mac and credits tied to previous buybacks, San Francisco-based Wells Fargo said yesterday in a statement. The firm already had set aside money to cover the cost of the agreement, according to the statement.

“We do not expect the company to take an additional charge for this settlement,” Joseph Morford, an RBC Capital Markets analyst, wrote in a note to clients. “We are pleased to see Wells move past more of its outstanding legacy issues, and we believe this should be a slight positive for the stock.”

Home lenders including Bank of America Corp. (BAC) and Citigroup Inc. have sought to resolve claims tied to faulty mortgages sold to Fannie Mae and Freddie Mac, the U.S.-owned firms that took a $187.5 billion bailout during the financial crisis. Citigroup reached a $395 million deal with Freddie Mac last week and announced a $968 million settlement with Fannie Mae in July.

‘Repurchase Liabilities’

Wells Fargo’s agreement “resolves substantially all repurchase liabilities related to loans sold” to Freddie Mac before 2009, the bank said.

The lender’s shares fell 27 cents to $41.32 yesterday in New York. The stock has climbed 21 percent this year, matching the advance for the 24-company KBW Bank Index. (BKX)

Wells Fargo sold $343 billion of mortgages to Freddie Mac in 2005 through 2008, according to data from Washington-based Compass Point Research & Trading LLC. That compares with $212 billion sold to Fannie Mae.

U.S.-backed firms including Freddie Mac and Fannie Mae had outstanding demands as of June 30 that Wells Fargo repurchase more than 6,300 loans with an original balance of $1.4 billion, the bank said in a July 12 statement. About 89 percent of those were for loans originated in 2006 through 2008, the bank said.

The bank continued to sell loans after the period covered by the settlement, including $126 billion to Freddie Mac in 2009 and $155 billion to Fannie Mae, according to Compass Point.

The lender, led by Chief Executive Officer John Stumpf, 60, also faced demands for refunds from private investors. Wells Fargo had unresolved private claims tied to $258 million of mortgages at the end of June, and $127 million more linked to mortgage insurers, according to the July statement.

The bank had $2.2 billion in reserves for buying back faulty mortgages at the end of the second quarter and has added $6.5 billion to its reserves since 2009, according to data compiled by Bloomberg.

Wells Fargo originated 23 percent of all U.S. home loans in the first half of the year, or about $224 billion, according to Inside Mortgage Finance, an industry publication.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net; David Scheer at dscheer@bloomberg.net

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