Fannie, Freddie settle claims on Countrywide loan repurchases; Bank of America takes $3 billion hit

By Susanna Moon

Chicago, Jan. 3 - Federal National Mortgage Association and Federal Home Loan Mortgage Corp. resolved claims on repurchases or repurchase requests on loans sold by Countrywide Home Loans, Inc., according to separate 8-K filings by the agencies with the Securities and Exchange Commission.

The agencies entered into agreements with Bank of America, NA, BAC Home Loans Servicing LP and Countrywide Home Loans, Inc., each of which is an affiliate of Bank of America Corp., on Friday.

Freddie Mac agreement

Freddie Mac said it received a $1.28 billion cash payment for releasing Bank of America and its two affiliates from repurchase claims on the sale of loans by the Countrywide companies for which the first regularly scheduled monthly payments were due by Dec. 31, 2008.

The unpaid principal balance of the loans in this portfolio, as reflected on Freddie Mac's books as of Nov. 30, was about $117 billion.

The agreement applies only to certain claims for repurchase based on breaches of representations and warranties, and the agreement contains specified limitations, the filing by Freddie Mac noted.

The agreement does not cover loans sold to Freddie Mac or serviced for Freddie Mac by other Bank of America companies.

The agency said it does not expect the agreement to have a material impact on its 2010 financial statements.

Fannie Mae agreement

The agreement with Fannie Mae addresses outstanding repurchase requests on loans with an unpaid principal balance of about $3.9 billion delivered by affiliates of Countrywide Financial Corp., which merged with Bank of America in 2008, according to a separate filing by Fannie Mae.

Under the agreement, Bank of America agreed to pay about $1.52 billion, consisting of a cash payment of $1.34 billion made by Bank of America on Friday and credits for payments recently made or to be made by Bank of America.

The agreement substantially resolves outstanding repurchase requests on 12,045 loans sold to Fannie Mae by Countrywide. It also addresses 5,760 other loans sold by Countrywide and permits the agency to bring claims for any additional breaches of representations and warranties on those loans.

The mortgage seller/servicers are obligated to repurchase loans or foreclosed properties, or reimburse the agency for losses if the foreclosed property has been sold, if the mortgage loans do not meet its underwriting, eligibility or other requirements.

As of Sept. 30, about 55% of the agency's $7.7 billion outstanding repurchase requests to all its mortgage seller/servicers, as measured by unpaid principal balance, had been made to Bank of America.

This agreement addresses about 44% of the agency's outstanding repurchase requests as of Sept. 30. These amounts do not include amounts relating to repurchase requests originating from missing documentation or loan files.

Fannie Mae said it continues to work with Bank of America to resolve outstanding repurchase requests to Bank of America, including requests relating to loans delivered by Bank of America, NA.

BofA's $3 billion provision

In a press release, Bank of America said it expects to take a provision of about $3 billion in the fourth quarter of 2010 for repurchase obligations on residential mortgage loans sold by Bank of America affiliates to Freddie Mac and Fannie Mae.

Bank of America said the provision addresses its remaining exposure to repurchase obligations for residential mortgage loans sold to the agencies.

The calculation of the provision incorporates historical experience with the agencies and assumptions about economic conditions, home prices and other matters, and future provisions for representations and warranties may be affected if the actual results are different, the release noted.

"These actions resolve substantial legacy issues in the best interest of our shareholders," Bank of America president and chief executive officer Brian Moynihan said in the release.

"Our goals remain the same: put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times."

The agreement with Freddie Mac extinguishes all outstanding and potential mortgage repurchase and make-whole claims arising out of any alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Freddie Mac through 2008.

The bank said the agreement with Fannie Mae substantially resolves the existing pipeline of repurchase and make-whole claims outstanding as of Sept. 20 arising out of alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide to Fannie Mae.

The Charlotte, N.C.-based bank said the agreements with Freddie Mac and Fannie Mae do not cover loan servicing obligations, other contractual obligations or loans contained in private-label securitizations.

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