Rise of the Rentals

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Th e M Rep o RT | 63 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET LocaL edition sold to Fannie Mae and Freddie Mac at the height of the housing bubble. The settlement resolves four lawsuits filed in September 2011 against BofA, Countrywide, and Merrill Lynch, the latter two of which were acquired by the megabank in 2008. The agency's original complaint alleged misrepresentations of mortgage loan quality in regard to private- label residential mortgage-backed securities (RMBS) purchased by the GSEs between 2005 and 2007. Allegations of common law fraud were made in the Countrywide and Merrill Lynch cases. According to announcements made by all parties involved, under the agreement, BofA will make an aggregate payment of approximately $9.33 billion, $3.2 billion of which will go toward the repurchase of certain RMBS at fair market value. In return, the bank will be released from FHFA's pending lawsuits and will be cleared from "certain other claims related to the private-label RMBS in dispute." The settlement covers approximately $57.5 billion (in purchase cost) of RMBS purchased by the GSEs, according to a release from BofA. FHFA director Mel Watt celebrated the settlement, saying in a statement that it "represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit." "Many potential homeowners will benefit from increasing certainty in the marketplace, and that is very much the direction we should be taking," he added. The suit with BofA is just one of more than a dozen the agency filed against banks in 2011 as part of its efforts to recover losses Fannie and Freddie suffered through the crash. Of 18 suits filed, FHFA now has claims remaining in seven. In addition to the FHFA agreement, Freddie Mac also announced a separate settlement with BofA concerning claims related to reps and warranties on single-family loans underlying five Freddie Mac Structured Pass- Through Certificates ("T-Deals"). In exchange for a payment of $134 million, the enterprise has agreed to release the bank from existing and future loan repurchase obligations for those mortgages. "We are pleased that we have resolved this matter with one of our largest seller/servicer customers and counterparties," said Freddie Mac CEO Donald Layton. "This settlement is an equitable outcome that allows both Freddie Mac and Bank of America to put these issues be- hind us and focus on the future." As for BofA, it expects its Q1 2014 income to take a cut of about $3.7 billion as a result of the settlement—and that's not the only litigation expense on its radar. Lawyers for the bank appeared in U.S. District Court in March to argue for the penalty phase of a fraud case decided last October, when BofA was held liable for allegedly reckless loans made by Countrywide before its acquisition. While the government is pushing for $2.1 billion in fines—a far cry from the $864 million originally sought—BofA says it should be penalized for the amount of profit it made from selling the loans: $0. FHFa, credit suisse reach $885m agreement The agency resolves anoTher complainT in a long line of suiTs filed in 2011. zurich // The Federal Housing Finance Agency (FHFA) and Credit Suisse announced a nearly $900 million settlement to resolve alleged violations of securities laws in connection with private- label mortgage-backed securities (MBS) purchased by the GSEs during 2005–2007. According to separate releases from both FHFA and Credit Suisse, the bank will pay approxi- mately $234 million to Fannie Mae and approximately $651 million to Freddie Mac—$885 million total. The settlement—the ninth out of 18 suits filed against banks by the FHFA in 2011—closes all claims against Credit Suisse in two lawsuits: FHFA v. Credit Suisse, et al., and FHFA v. Ally Financial Inc., et al. The cases revolved around a to- tal $16.6 billion of residential MBS for which FHFA alleged Credit Suisse failed to conduct "adequate and reasonable due diligence." "During the time period in which the certificates were is- sued—approximately 2005 through 2007—Credit Suisse's involvement in the mortgage-backed securitiza- tion market was rapidly expand- ing," the agency said in its 2011 complaint. "The push to securi- tize large volumes of mortgage loans contributed to the absence of controls needed to prevent the inclusion of untrue statements of material facts and omissions of material facts." Though Credit Suisse has agreed to pay to resolve what it calls its "largest mortgage-related investor litigation," the settlement includes no admission of liability or any wrongdoing on the part of the bank: "To the contrary, the Credit Suisse defendants vigor- ously deny the allegations in the Credit Suisse and Ally Actions." Credit Suisse also announced its 2013 annual report will now include a charge of $275 million Swiss francs (CHF)—about $311.6 million in U.S. dollars—after tax. Adjusting its preliminary finan- cial results, the bank's reported fourth-quarter net loss comes to $8 million CHF. The latest settlement serves as another feather in the cap of FHFA, which has acted as Fannie and Fannie's conservator since 2008. In 2013 alone, the agency pulled in nearly $8 billion through settlements with JPMorgan Chase, UBS Americas, and others.

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