January 07, 2013Fannie Mae Reaches Comprehensive Resolution with Bank of America, Yielding Positive Outcome for Taxpayers
WASHINGTON, D.C. – Fannie Mae (FNMA/OTC) today announced a comprehensive resolution with Bank of America, including a $10.3 billion agreement on existing and prospective repurchase requests on a specified population of loans and an additional payment of $1.3 billion to address servicing issues. Click here to read the Form 8-K.
The agreement covers current and future repurchase obligations related to loans with an outstanding unpaid principal balance of $297 billion as of November 30, 2012 that were originated between January 1, 2000 and December 31, 2008. As part of the agreement, Bank of America will make a cash payment to Fannie Mae of $3.55 billion. In addition, Bank of America will repurchase approximately 30,000 loans, which have the potential to cause significant future losses to Fannie Mae, paying par plus accrued interest, for an additional approximately $6.75 billion, subject to certain adjustments. As a result of this resolution, the amount of Fannie Mae’s outstanding repurchase requests will decrease substantially in the first quarter of 2013.
“A favorable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers,” said Bradley Lerman, Executive Vice President and General Counsel of Fannie Mae. “Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests.”
Under the agreement, Bank of America remains liable for repurchase obligations arising out of specified excluded defects (for example, Fannie Mae Charter Act violations) and certain unresolved servicing and indemnification obligations. Bank of America also will be responsible for certain payment and other obligations related to mortgage insurance.
The comprehensive resolution also includes Fannie Mae’s approval of Bank of America’s request to transfer the servicing rights of approximately 941,000 loans from Bank of America to specialty servicers. Fannie Mae’s approval of the transfer is consistent with its strategy to leverage the enhanced loss mitigation capabilities of specialty servicers to reduce credit losses on high risk loans.
In addition to the $10.3 billion resolution and in connection with Fannie Mae’s approval of the servicing transfer, Bank of America will pay Fannie Mae $1.3 billion to resolve loan servicing compensatory fee obligations.