Wells Fargo Settles With Fannie Mae Over Defective Home Loans
San Francisco-based Wells Fargo has agreed to pay Fannie Mae $591 million to resolve disputes over defective home loans that the bank sold to the government-backed housing finance firm during the subprime housing boom.
The move completes Fannie Mae’s efforts to have banks buy back soured mortgages made before the financial crisis — in Wells Fargo’s case, loans originated before 2009. Fannie Mae said on Monday it had reached settlements worth approximately $6.5 billion in loan buybacks with eight banks, including Wells Fargo. According to Reuters:
The settlements include a $3.6 billion accord in January with Bank of America Corp. over loans from that bank and the former Countrywide Financial Corp. … It also includes a $968 million accord in July with Citigroup Inc.
Wells Fargo, the largest home lender in the U.S. and the fourth-largest bank in assets, said today in a statement that it paid $541 million in cash to Fannie Mae after adjusting for prior repurchases. The bank agreed in September to pay a net $780 million to the smaller housing finance firm Freddie Mac to resolve similar repurchase claims.
Fannie Mae and Freddie Mac own or guarantee two-thirds of the home loans made in the U.S. They almost went bankrupt and were seized by the government in 2008 because of bad loans they had purchased from banks.
Fannie Mae and Freddie Mac, which own or guarantee two-thirds of the home loans made in the U.S., almost went bankrupt and were seized by the federal government in 2008 because of bad loans they had purchased from banks. Under directives by the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have pushed banks to repurchase these loans they had bought before being placed under government conservatorship. As the Reuters story reports, “Banks can be forced to buy back home loans if representations and warranties concerning the underwriting and whether borrowers could afford to make payments prove false.”
The FHFA, according to Reuters, is also pursuing lawsuits against many banks over mortgage securities sold to Fannie Mae and Freddie Mac.Related