Democrats Demand Answers on Bank of America's Deal With Fannie Mae
The deal cut between Bank of America and the government's housing monsters is—finally—coming under scrutiny on Capitol Hill.
Four House Democrats have sent a letter to Edward DeMarco, the acting director of the Federal Housing Finance Agency (which oversees Fannie Mae and Freddie Mac), asking for information about the agreement with Bank of America . Last week, Bank of America agreed to pay $2.8 billion to settle mortgage putback claims. In December, Ally Financial cut a similar deal, agreeing to pay $462 million for repurchase requests on bad mortgages.
The deal was announced when most people weren't paying much attention, shortly after the New Year. It struck many observers as a great bargain for Bank of America. The stock rallied the day the deal was made public.
Here's the letter sent by Maxine Waters (D-CA) and several other Democrats on the House Financial Services Committee: Brad Miller (D-NC), Keith Ellison (D-MN) and Stephen Lynch (D-MA). (Note to Republicans: You should be asking these very same questions. Why are you letting the Democrats take ownership of this important issue?)
January 7, 2011
Mr. Edward DeMarco, Acting Director
Federal Housing Finance Agency
1700 G Street, NW
Washington, D.C. 20552
Dear Mr. DeMarco:
Over the course of several hearings of the House Committee on Financial Services during the 111th Congress, we were pleased by your testimony indicating that the Federal Housing Finance Agency (FHFA) would enforce lenders representation and warranty obligations to Fannie Mae and Freddie Mac (the Enterprises) by vigorously pursuing repurchase demands from institutions whose loans did not comply with the Enterprises underwriting and eligibility guidelines. In fact, several Members of Congress were so concerned about this issue that they wrote a letter to the Administration asking President Obama to nominate a director for FHFA that would continue your work in pursuing repurchases where applicable.
With that in mind, we are writing to request some clarity on whether the agreements announced on January 3, 2011 between the Enterprises and two counterparties — Ally Financial and Bank of America — represent the real liability the Enterprises bear as a result of the misrepresentations and breaches of warranty made by these institutions.
Specifically, we request detailed information on how FHFA determined that the combined $3.3 billion settlement represented the best possible recovery of funds available to taxpayers. Additionally, we request clarity on how the subpoenas for Ally Financial were resolved and whether Ally provided loan level or collateral file data to FHFA, and, if so, how this information was used to arrive at the $462 million settlement figure.
While we understand that many of the details in this settlement may include proprietary information, we believe that this is a matter of critical importance to the public interest and that transparency is therefore essential. As you know, the Enterprises have been under conservatorship since September 2008, and their ability to recover losses stemming from a lack of lender compliance with their guidelines directly affects taxpayers. Moreover, as other FHFA subpoenas related to potential misrepresentations or breaches of warranty are still outstanding, we believe that the agreements reached between the Enterprises and these counterparties may set an important precedent for other negotiations moving forward.
We anticipate a response to this letter no later than January 24, 2010 and we look forward to your prompt response. We would be happy to discuss this request with you in more detail if necessary.
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