The U.S. banking industry suffered two big hits Monday stemming from the collapse of the housing bubble, with 10 banks and mortgage lenders agreeing to pay $8.5 billion in a settlement with federal regulators, while Charlotte, N.C.-based Bank of America agreed to a separate settlement with Fannie Mae over bad housing loans that its controversial lending subsidiary sold to the federal housing finance giant.
The 10 major banks and mortgage lenders, including Bank of America Corp., stood accused of prematurely foreclosing on homeowners and agreed to the settlement worked out with the Federal Reserve and Office of the Comptroller of the Currency.
Bank of America agreed to pay $10.3 billion in a settlement with Fannie Mae over bad loans that its Countrywide subsidiary sold the government-backed mortgage giant during the height of the housing bubble, the byproducts of a loose mortgage system that eventually flooded the market with bad housing loans.
Bank of America will pay Fannie Mae $3.55 billion in penalties and also spend $6.8 billion to repurchase about 30,000 of the most questionable home loans. In 2011, it settled a similar complaint with Freddie Mac, Fannie Mae’s sister agency.
Bank of America has been on the hook for the suspicious loans made by high-flying mortgage originator Countrywide Financial Corp., which it purchased in 2008. The loans were made between 2000 and 2008.
“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Bank of America CEO Brian Moynihan said in a statement.
Investors took the Bank of America news in stride — a sign that many believe the bank was putting the worst of the global financial crisis behind it. The bank’s stock was essentially flat for the day.
Bank of America was one of the 10 lenders also caught up in the settlement with federal regulators over the rules and processes they used in foreclosing on borrowers who fell behind on mortgage payments during the Great Recession. In April 2011, regulators began investigating their foreclosure practices during 2009 and 2010.
Regulators complained that Bank of America, along with Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co. and six others, had foreclosed on homes too early by mishandling paperwork and skipping necessary steps they were supposed to take.
These major banks will pay $3.3 billion directly to eligible homeowners, while another $5.2 billion will go toward loan modifications and forgiveness. Some 400,000 homeowners who suffered from these premature foreclosures will be eligible to recoup up to $125,000 in losses.
“We have learned a great deal from the reviews that have been conducted to date,” Comptroller of the Currency Thomas J. Curry said in a statement. “However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets.”
Citigroup is glad to move on. “We are pleased to have the matter resolved and believe this agreement is a positive development that will provide benefits for homeowners,” the company said in a statement.
But some in Congress said this settlement will end the investigation too soon and hoped the agencies would have pushed for more answers.
“I am deeply disappointed that the OCC and the Federal Reserve finalized this settlement and effectively terminated the Independent Foreclosure Review process before providing Congress answers to serious questions about how this settlement amount was determined, who these funds will go to, and what will happen to other families who were abused by these mortgage servicing companies, but have not yet had their cases reviewed,” said Rep. Elijah E. Cummings, Maryland Democrat and ranking member of the House oversight and government reform committee. “I do not know what the rush was to make this settlement without answering these key questions, and although I look forward to obtaining information about how this deal may assist homeowners, I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered.”
This follows a $25 billion settlement for foreclosure abuse among five large banks, including Bank of America, and the Obama administration and 49 state attorneys general, which was agreed to in February 2011.
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Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at email@example.com.
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