FHFA Criticized for Bank of America Mortgage Settlement
A federal watchdog on Tuesday criticized the Federal Housing Finance Agency for what it called poor judgment and procedures in assessing the value of loans which Bank of America was forced to repurchase from Fannie Mae and Freddie Mac. The Federal Housing Finance Agency has been tasked with overseeing the two beleaguered government-owned mortgage backers, and decided late last year to force BoA to buy back a large number of bad mortgages and mortgage-backed securities.
In the settlement with Bank of America, which purchased Countrywide Financial in 2008, the nation’s largest bank paid $1.35 billion to Freddie Mac and $1.52 billion to Fannie Mae for more than a million mortgages, most originated by Countrywide before BoA acquired it. The watchdog said that the FHFA should have had a better system in place for verifying the value of the loans, implying that the deal had not gotten top dollar for taxpayers. The report claimed that the FHFA was warned before the settlement that the system in place could cost taxpayers billions, but the agency went ahead with the settlement anyway.
In a response, FHFA officials called the settlement with Bank of America “appropriate and reasonable.” The statement acknowledged flaws in the process used for checking the value of mortgages, explaining that that was the reason they stopped negotiations with other banks over similar settlements. The watchdog said it had looked into the matter because the BoA settlement could serve as a precedent for future settlements with other large banks over bad mortgages sold to Fannie and Freddie.