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Fannie-Freddie Settlement Tab in 2013: $7.9 Billion

online.wsj.com | January 5, 2014

By Nick Timiraos

Fannie Mae FNMA -1.01% and Freddie Mac FMCC -1.74% collected $7.9 billion last year in settlements with seven major financial institutions to resolve lawsuits filed by the firms' regulator, the Federal Housing Finance Agency said Thursday.

The seven settlements had already been disclosed by either the banks or the FHFA, but the FHFA hadn't provided the amounts that some of the bank defendants had paid until Thursday.

The FHFA, which controls government-backed Fannie and Freddie, sued 18 financial institutions in 2011 seeking unspecified damages on about $200 billion of mortgage investments. It alleged that financial institutions misled Fannie and Freddie about the quality of loans underlying mortgage bonds sold to the mortgage-finance giants.

The FHFA has now reached settlements to resolve six of the 18 lawsuits. It reached a seventh settlement with Wells Fargo WFC +0.71% & Co., which it hadn't sued. Wells paid $335 million to avoid potential litigation.

The FHFA said Thursday that it had collected $475 million in an October settlement with Ally Financial Inc., $250 million in its May settlement with Citigroup Inc., C +2.16% and $6 million in its January 2013 settlement with General Electric Corp. GE -0.07%

A federal court in Manhattan is set to hear in June the first of the remaining cases, against Merrill Lynch & Co., which was acquired by Bank of America Corp. BAC +1.93% in 2008. Of the outstanding lawsuits, Bank of America faces potentially the largest tab. The FHFA sued BofA, Merrill and Countrywide Financial Corp., which was also acquired by BofA in 2008, over $57.5 billion in securities. The FHFA is seeking at least $6 billion from Bank of America to settle those cases, according to people familiar with the matter.

Other settlements had been disclosed earlier by the FHFA. It settled with Deutsche Bank AG DBK.XE +0.91% for $1.93 billion last month. It reached settlements in October with J.P. Morgan Chase JPM +0.77% & Co. for $4 billion and with UBS AG UBSN.VX +0.77% for $885 million in July. None of the banks admitted wrongdoing in the settlements.

Legal analysts expect the remaining cases to be settled before going to court because of a series of legal rulings that have largely undercut banks' efforts to narrow their potential liability.

While Fannie and Freddie don't make loans directly, they support housing markets by buying mortgages from banks and then selling them to investors as securities, providing guarantees. During the housing boom, Fannie and Freddie augmented their role in the housing market by purchasing privately issued securities as investments.

The U.S. Treasury in 2008 rescued Fannie and Freddie as mortgage losses mounted. All told, the two received more than $150 billion in infusions to stay afloat. They have become highly profitable over the past year and are close to having paid as much to the U.S. in dividends as the government was forced to inject to stabilize the firms.

 

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