Add another mega-settlement to the rapidly growing list of huge payouts by the nation’s largest banks to federal agencies. Wells Fargo reportedly has now agreed to pay the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, close to $1 billion. The settlement payment will resolve claims that Wells Fargo sold toxic mortgage-backed securities to Fannie and Freddie prior to the financial crisis. The specific terms of the deal are said to be subject to a confidentiality agreement.
The FHFA has served as Fannie Mae and Freddie Mac’s conservator since their $187 billion taxpayer bailout in 2008. It filed suits against 18 banks over losses suffered by Fannie Mae and Freddie Mac on more than $130 billion worth of mortgage-backed securities. The certificates were underwritten between 2005 and 2007. The FHFA has alleged that offering documents filed with the Securities and Exchange Commission for every one of the more than 400 certificates at issue failed to disclose major underwriting problems and misstated the loan-to-value ratios of the underlying loans.
Wells Fargo was the only major U.S. bank not named as a defendant in the FHFA’s 2011 lawsuit over alleged misrepresentations and omissions in the sale of residential mortgage-backed securities. It is now believed that Wells was not sued in that instance only because its attorneys had already begun discussions with the FHFA about settling the case.
The List Of Large Settlements Continues To Grow
Wells said on September 30, 2013 that it had reached a $780 million settlement with Freddie Mac over similar claims. The bank said at the time the deal resolved substantially all repurchase liabilities related to loans sold to Freddie Mac before January 1, 2009.
Wells Fargo’s reported deal with the FHFA comes less than a week after that same agency announced a $5.1 billion settlement with JPMorgan Chase & Co. That payment by Chase is said to be part of a larger settlement package that it is negotiating with the federal government, with the total price of all such settlements expected to be approximately $13 billion. Last week, Ally Financial Inc., the former parent of bankrupt Residential Capital LLC, said it will take a $170 million charge in the third quarter after settling with the FHFA and Federal Deposit Insurance Corp. for an unknown amount.
Light At The End Of Tunnel For Correspondent Lenders?
Correspondent lenders, bombarded over the last several years with repurchase and indemnification claims made against them by the biggest banks, can perhaps see a light at the end of the tunnel in the wake of these settlements. But an open question remains as to whether the banks will indeed (as we expect) seek to recoup some or all of their settlement payouts by turning their attention on the correspondents with renewed vigor. If they do so, they face a difficult task in attempting to portray themselves as “injured innocents,” allegedly misled as to their own loan products, over and over again, by hundreds or thousands of correspondents.