After settling with Freddie Mac for $869 million in October of last year, Wells Fargo has agreed to pay $591 million to Fannie Mae to settle disputes over soured mortgages the bank sold to the seized housing finance giant during the subprime housing boom. This agreement by Wells Fargo is to settle allegations that many of the mortgages it originated and sold to Fannie Mae before 2009 included false representations and warranties.
Is this good news for the real estate market?
This comes at a time when Fannie and Freddie are generating surpluses and appear to be set to keep minting money by the billions for the federal Treasury. If this agreement increases consumer confidence in our financial institutions then it probably is good news for the market.
The agreement covers loans originated by Wells Fargo before 2009 that Fannie Mae was trying to force the bank to buy back. The deal “resolves substantially” all repurchase issues related to those loans, the company said.
Fannie Mae and its sibling firm, Freddie Mac, were seized by the federal government in 2008 as they teetered near bankruptcy because of bad loans they had purchased from banks. The firms bundled the mortgages into securities and could try to force banks to buy back loans that did not meet certain guidelines.
Fannie Mae and Freddie Mac have been aggressively pushing banks to repurchase so-called legacy loans the firms had bought before they were placed under government conservatorship.
“This agreement represents a fitting conclusion to our year of hard work to put legacy issues in the rear-view mirror and begin 2014 focused on improving the future of housing finance.” said Fannie Chief Executive Timothy J. Mayopoulos.
Banks have agreed to pay Fannie about $12.7 billion this year to resolve disputes over toxic mortgages. The largest deal was a $10.3-billion settlement with Bank of America Corp. in January of 2013.
In October, Wells Fargo agreed to an $869-million settlement with Freddie Mac on pre-2009 mortgages.