Dec. 30, 2013, 9:14 a.m. EST
Wells Fargo in $591 million Fannie Mae settlement
By Saabira Chaudhuri
Wells Fargo & Co. on Monday reached a $591 million deal with Fannie Mae to settle claims that it sold defective mortgages to the government-controlled home-loan financier.
Adjusted for credits related to previous repurchases, Wells Fargo will pay $541 million. As of the end of its third quarter, the largest mortgage lender in the U.S. had accrued for the cost of the settlement in full.
Wells Fargo said the deal resolves all of the potential buyback demands it had pertaining to loans sold to Fannie Mae that were originated before 2009.
While Fannie, and its smaller sibling Freddie Mac, don't make loans directly, they support housing markets by buying mortgages from banks and then selling them to investors as securities, providing guarantees. During the housing boom, Fannie and Freddie augmented their role in the housing market by purchasing privately issued securities as investments.
Fannie, and Freddie can force banks to buy back mortgages that don't conform to agreed-upon guidelines, and both companies have demanded that lenders repurchase billions in soured loans over the past four years.
The federal regulator for Fannie and Freddie has directed the firms to reduce repurchase demands outstanding by year-end.
The U.S. Treasury in 2008 rescued Fannie and Freddie as mortgage losses mounted. All told, the two received more than $150 billion in infusions to stay afloat. They have become highly profitable over the past year and are close to having paid as much to the U.S. in dividends as the government was forced to inject to stabilize the firms.
Wells Fargo's deal with Fannie comes after Deutsche Bank AG recently said it would pay $1.93 billion to settle a lawsuit filed by the Federal Housing Finance Agency, which controls Freddie and Fannie over mortgage securities the bank sold to the mortgage giants during last decade's U.S. housing bubble.
However Deutsche Bank's settlement doesn't resolve separate litigation filed earlier this year by Fannie and Freddie against it and other Wall Street firms over losses the mortgage giants allege they sustained from manipulation of interest rates.
In late November, Fifth Third Bancorp agreed to pay $25 million to Freddie Mac to settle claims that it sold soured mortgages to the agency. Other banks that have recently settled with Freddie or Fannie include SunTrust Banks Inc., Citigroup Inc.--and also on Monday, Flagstar Bancorp Inc.
Nick Timiraos contributed to this article.