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BofA Resolves Repurchase Liability on $131 Bil in Loans

It was the second time during the past seven days that a major residential lender disclosed an agreement to resolve repurchase claims on originations securitized through Fannie Mae or Freddie Mac. While the agreements resolve potential repurchase disputes on more than $200 billion in mortgages, the two secondary agencies own or guarantee more than $5 trillion in loans.

Last week, Ally Financial Inc. said in a filing with the Securities and Exchange Commission that it reached a $462 million agreement with Fannie Mae to settle its repurchase liabilities on $84 billion in securitizations.

The move followed a July 2010 announcement that the Federal Housing Finance Agency had filed 64 subpoenas against private-label issuers whose mortgage-backed securities had been acquired by either Fannie or its government-controlled cousin Freddie.

Today, Bank of America Corp. issued a statement indicating that it reached agreements with Fannie and Freddie to resolve outstanding and potential repurchase claims. The move will result in a fourth provision of around $3 billion, including a $2 billion goodwill impairment at its home-loans unit.

“Through this provision, Bank of America believes that it has addressed its remaining exposure to repurchase obligations for residential mortgage loans sold directly to the GSEs,” the statement said.

A $1.34 billion cash payment was made on Dec. 31 in connection with the agreement with Fannie. The settlement impacts 17,805 loans for $4.0 billion that were originated by Countrywide Financial Corp. — which BofA acquired in July 2008. After all is said and done, the agreement with Fannie is expected to cost $1.52 billion.

The Charlotte, N.C.-based company made a $1.28 billion payment, also on Dec. 31, to Freddie as part of an agreement impacting 787,000 mortgages for $127 billion that were acquired from Countrywide through 2008.

Fannie reported that its book of business stood at $3.2 trillion as of Nov. 30, while Freddie said its total mortgage portfolio ended November at $2.2 trillion. The massive holdings leave room for more such agreements with other sellers.

“The agreements also reflect FHFA’s ongoing efforts to ensure the enterprises enforce claims for violations of representations and warranties incurred by the Enterprises or breaches of other legal obligations,” FHFA Acting Director Edward J. DeMarco said in a press release. “While these agreements are an important step, the enterprises have other outstanding claims across a range of counterparties and they are being pursued.”

Additional settlements are likely to mitigate taxpayer costs at the two secondary lenders; Freddie has taken or requested $63.2 billion in draws from the Treasury Department through the third-quarter 2010, while Fannie has drawn or requested $87.6 billion.

BofA said the agreements announced today don’t cover contract obligations, mortgage servicing obligations or private-label securitizations.

“Fannie Mae continues to work with Bank of America to resolve repurchase requests that remain outstanding, including requests relating to loans delivered to the company by Bank of America, N.A.,” Fannie Chief Executive Officer Michael J. Williams said in a news release. “We appreciate Bank of America’s work to reach this agreement and look forward to our continued mutual efforts to support the U.S. housing market.”

Freddie’s CEO also issued a statement.

“I’m pleased to reach this agreement with Bank of America and believe it is in all parties’ best interests,” Freddie CEO Charles E. Haldeman Jr. said in the statement. “Bank of America has long been one of Freddie Mac’s largest and most important business partners and we look forward to continuing our work together to provide mortgage funding for America’s families.”

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