BofA pact represents 44% of total Fannie repurchase claims
Fannie Mae said the agreement reached with Bank of America regarding repurchase requests on mortgages sold to the GSE by Countrywide Financial Corp. addresses about 44% of the $7.7 billion in repurchase claims the company had outstanding with all of its seller servicers as of Sept. 30. Fannie President and Chief Executive Michael Williams said the BofA agreement is "fair and a responsible resolution of these outstanding claims." Repurchase requests on some 12,045 loans sold by Countrywide, which Bank of America acquired in early 2008, to Fannie Mae were resolved by the agreement. The pact also addresses another 5,760 loans by allowing the GSE "to bring claims for any additional breaches of our representations and warranties that are identified with respect to those loans." As per the agreement, Bank of America paid $1.34 billion cash to Fannie Mae last week and $1.28 billion to Freddie Mac. "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," Williams said. The agreement, coupled with Ally Financial's settlement with Fannie Mae, prompted Keefe, Bruyette & Woods to revisit its representations and warranties estimates for the mortgage industry on loans originated specifically to be sold to the GSEs. "Our analysis continues to make us comfortable that our base case loss assumption for rep and warranty losses on loans sold to the GSEs remains reasonable," the investment bank said. Prior to the settlements, KBW estimated base case losses of $28 billion on loans sold to the GSEs. With the Ally deal, the estimate slid to losses of $26 billion, while the BofA settlement points to losses of $48 billion. "We believe that the Ally Financial numbers are a better template for the industry as a whole because the delinquency rates are closer to industry averages," KBW said. "We believe the Bank of America settlement is a stress case number given the company well-above average delinquency rates." KBW analysts expect more settlements, but added "settlement clearly comes at a price that might be too high for some originators who believe their underwriting standards were strong." "Originators who do not expect a meaningful increase in losses might choose not to pay for this protection," KBW said. "This suggests that the settlement option will most likely be chosen by weaker originators trying to protect downside risk." Write to Jason Philyaw.