Fannie Mae-No Politics (FNMA)

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The Role of Lending Institutions
by Kyle Webster
The ongoing saga of major bank settlements with the Department of Justice, Fannie Mae and Freddie Mac is mostly the result of the economic crisis of 2007-2008. Prior to this time, Bank of America and JPMorgan Chase & Co. sold billions of dollars in mortgage loans and mortgage securities to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are government-affiliated companies that purchase mortgages from lenders and sell them to investors. Accusations have been made that the mortgages purchased by Fannie Mae and Freddie Mac were higher risk and more problematic than BOA or JPMorgan Chase expressed.

Fannie Mae and Freddie Mac have actively pursued the repurchase of loans that did not meet their lending standards upon origination in an effort to recoup their losses. In October 2013, the Federal Housing Finance Agency, acting on behalf of Fannie Mae and Freddie Mac, reached a $5.1 billion settlement with JPMorgan Chase. The settlement resulted from accusations that JPMorgan Chase violated federal and state securities laws when misrepresenting the quality of the sub-prime mortgage loans and securities sold to the two companies, which resulted in billions in damages to the companies during the 2008 financial crisis.

In January 2013, BOA settled with Fannie Mae over faulty lending practices by one of its subsidiaries, Countrywide Financial Corporation. Fannie Mae had accused the BOA subsidiary of utilizing faulty lending practices on $1.4 trillion in mortgages sold to them as investment products. In the settlement, BOA paid Fannie Mae $3.55 billion and repurchased $6.75 billion in outstanding residential mortgage loans. This substantively resolved all outstanding disputes between BOA and Fannie Mae. In 2011, BOA settled with Freddie Mac and Fannie Mae for over $3 billion in a similar agreement. In this agreement, Freddie Mac was given roughly $1.3 billion and Fannie Mae received over $1.3 billion.

In November 2013, the Court of Appeals for the Second Circuit dismissed a case by investors against Freddie Mac accusing the company of hiding the extent of exposure it had to the sub-prime mortgage crisis saying the case lacked any real evidence.

Department of Justice Settlements
by Zachariah Rivenbark
JPMorgan Chase & Co. Settlements with the US Department of Justice

The US Department of Justice announced on November 19, 2013 that JPMorgan Chase & Co. had agreed to a record-setting $13 billion settlement over its risky mortgage practices that played a role in the 2008 financial crisis. News of the historic agreement first broke on October 21, 2013, when a source close to the talks reported a breakdown of the $13 billion figure and that criminal prosecution of JPMorgan was still on the table. The report turned out to be true, as JPMorgan settled federal and state claims to the tune of $9 billion and to provide $4 billion in relief to unspecified consumers harmed by the risky mortgage practice. In addition, JPMorgan and its employees still faced the possibility of criminal charges. On February 10, 2014, the settlement agreement came under fire after non-profit financial reform group Better Markets sued the DOJ to block the $13 billion settlement from moving forward.

In addition to the November 2013 $13 billion settlement, JPMorgan has reached another substantial settlement agreement with the DOJ. On February 4, 2014, the DOJ announced that JPMorgan agreed to a $614 million settlement for defective mortgage loans that were ineligible for insurance under federal housing programs. The DOJ was not an original party to the lawsuit, which started in January 2013 after a whistleblower, Keith Edwards, sued JPMorgan under the False Claims Act[PDF]. News of the $614 million settlement came as a surprise because Edward's suit remained secret until the DOJ announced the agreement in February 2014.

Bank of America Settlements with the US Department of Justice

In December 2011, Bank of America reached a $335 million settlement agreement with the DOJ over claims that its subsidiary, Countrywide Financial, used race instead of creditworthiness as the determinative factor in assigning minority borrowers sub-prime mortgages. As part of the agreement, BOA admitted to engaging in racially discriminatory practices from 2004 to 2008, which resulted in 200,000 minority borrowers facing a higher risk of foreclosure.

BOA faced a new lawsuit from DOJ on October 24, 2012 when US Attorney Preet Bharara filed a lawsuit against BOA alleging that BOA and Countrywide Financial committed fraudulent mortgage practices. A year later, a jury in the US District Court for the Southern District of New York found BOA liable for its fraudulent practices. The DOJ alleged similar claims in a lawsuit against BOA in the US District Court for the Western District of North Carolina from August 2013, stating that BOA misled investors about the level of risk associated with its residential mortgage-backed securities. Most recently, a New York state court validated a $8.5 billion settlement agreement between BOA and mortgage investors.

http://www.jurist.org/feature/featured/bank-settlements/detail.php