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Jan. 10, 2013

Bank of America Settlement Needs Another Look

Public Citizen Asks FHFA Inspector General to Make Sure Taxpayers Aren’t Getting Short Changed by New Deal

WASHINGTON, D.C. – The settlement agreement between Federal National Mortgage Association (Fannie Mae) and Bank of America should be investigated to be sure proper oversight was given by the Federal Housing Finance Agency (FHFA), Public Citizen said in a letter today to FHFA Inspector General Steve A. Linick.

In the letter, Public Citizen questions the assertion by FHFA Acting Director Edward DeMarco that the $3.5 billion settlement is “in the best interest of taxpayers.” This amount is to be paid by Bank of America to Fannie Mae as restitution for bad loans leading up to the financial crisis. However, the sum represents only a quarter of a percent of the $1.4 trillion original value of the loans.

The inspector general has previously reported that the 12 million underwater homeowners now have an aggregate negative equity of $700 billion. Bank of America was among the largest originators of mortgage loans in the nation leading up to the financial crisis and holds a substantial portion of those underwater loans. In addition, a Justice Department lawsuit filed in October 2012 alleges that more than a third of the mortgages that Bank of America’s Countrywide unit sold to government sponsored enterprises such as Fannie Mae contained “material defects.”

“Obviously there is a huge disconnect between the amount Bank of America is paying as part of the settlement and the financial harm caused to taxpayers by the bad mortgages the bank was selling,” said Bartlett Naylor, financial policy advocate for Public Citizen. “The deal needs closer scrutiny so we can be sure we don’t just create an incentive for banks to engage in the same kind of bad behavior in the future.”

To read the letter, visit http://www.citizen.org/documents/fhfa-ig-letter.pdf.

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