BofA nearing settlement with Freddie Mac

By Marc Castro

Nov 11, 2013 09:54 PM EST

Freddie Mac and Bank of America are currently undertaking settlement discussions to resolve disputes for the over USD4.1 billion in faulty mortgages Bank of America sold off to the mortgage lender. This was confirmed by individuals familiar with the matter.

This deal would be the second of its kind between the bank and the mortgage lender since 2011. The agreement would shield the bank from any demands from Freddie Mac stemming from the loans prior to 2012. The second largest US bank in terms of assets is scheduled for settlement before the year's end, according to one of the sources.

The potential settlement's terms were not available as these vary depending on the terms of the agreement as well as the amount of loans covered. Banks would often press to pay a lower amount of claims but will at times allow themselves to pay more value in order to avoid any further repurchase demands from loans as long ago as 2000 coming back to haunt them.

Since 2011, Bank of America had entered into settlement agreements with Freddie Mac and its sister company Fanne Mae. The earlier deal is worth USD11.6 billion. This is one option available to the mortgage lenders, as it can force banks to repurchase loans that fail to meet mortgage lending standards. Since 2009, both have asked that lenders repurchase nearly tens of billions of loans as the housing market took a nosedive after record breaking numbers.

These settlement discussions are not related to separate litigation filed by FHFA back in 2011. In this case, the government regulatory agency is seeking over USD6 billion over mileading disclosures done on some USD57.5 billion in securities sold by Bank of America and its subsidiaries, Countrywide Financial as well as Merill Lynch & Co., which was acquired by BofA in 2008.

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