CHARLOTTE, N.C. ó Bank of America Corp.’s sale of mortgage servicing rights to Fannie Mae, a transaction that spurred a congressional inquiry last week, “made sense for both companies,” the regulator of the government-controlled mortgage giant told reporters Monday.|By Rick Rothacker, McClatchy Newspapers
CHARLOTTE, N.C. ó Bank of America Corp.’s sale of mortgage servicing rights to Fannie Mae, a transaction that spurred a congressional inquiry last week, “made sense for both companies,” the regulator of the government-controlled mortgage giant told reporters Monday.
“We are certainly concerned about ensuring that these higher-risk mortgages are adequately and appropriately serviced, and this was an arrangement that helped to realize that goal,” Edward DeMarco, acting director of the Federal Housing Finance Agency, said after remarks at a mortgage conference sponsored by the N.C. Bankers Association.
Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, last week called the sale a possible “back-door bailout” for the Charlotte-based bank, which is working to shed mortgage-related liabilities and meet new capital standards. Issa sent a letter to DeMarco asking him to provide documents on the transaction and to explain the agency’s decision-making process.
“Congress and the American people deserve a full explanation for what appears to be yet another bailout paid for by taxpayers benefitting businesses that made bad business decisions,” Issa said in a statement.
Fannie Mae reportedly paid $500 million for the right to service the mortgages. Bank of America has not disclosed the purchase price or the buyer.
Bank of America spokesman Dan Frahm said the bank periodically sells mortgage-servicing rights or transfers mortgage-related assets to third parties. “This is a commonly accepted, industry-wide practice that many mortgage loan servicers, including Bank of America, have engaged in for many years,” he said.
In this case, he noted, the third-party purchaser already held the exposure to possible losses on the loans. Bank of America only serviced the mortgages.
DeMarco said Fannie Mae will not service the loans itself, instead transferring the loans to an undisclosed third party.
The Federal Housing Finance Agency oversees the two mortgage giants that were placed into government conservatorship in September 2008 after suffering huge losses in the housing bust. Fannie and Freddie buy mortgages from lenders, freeing up capital so banks can make more loans. Policy makers are debating ways to reform the nation’s housing finance system but action isn’t expected until after the 2012 presidential election.
In a move that shook bank stocks earlier this month, the FHFA filed lawsuits against 17 financial institutions, including Bank of America, alleging the banks sold Fannie and Freddie mortgage-backed securities during the housing boom using documents that misrepresented the quality of the underlying loans. The documents “significantly overstated the ability of the borrowers to repay their mortgage loans,” according to the suit filed against Bank of America.
DeMarco declined to comment on the suits.
©2011 The Charlotte Observer (Charlotte, N.C.)|