Fifth Third Bancorp
) announced a settlement with
) worth about $25 million. The settlement includes the resolution
of certain repurchase claims relating to misrepresentations of
loans originated and sold directly to Freddie Mac by Fifth Third
prior to Jan 1, 2009. The settlement amount will be paid from
Fifth Third's current reserves.
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Freddie Mac, along with
) can compel banks to buy back mortgages that do not abide by the
prescribed guidelines. Notably, since 2009, both these
Government-Sponsored Enterprises (GSEs) compelled many lenders to
repurchase bad loans worth billions of dollars. Additionally, the
Federal Housing Finance Agency (FHFA), the conservator for these
two firms, has set a goal to complete review of all loan files
for breaches of representations and warranties related to loan
activity prior to 2008.
Fifth Third is not the first bank to pen such a settlement with
these regulatory agencies. In Jan 2011,
Bank of America Corporation
) reached a $3 billion agreement with Freddie Mac and Fannie Mae
to resolve faulty mortgage loans sold by Countrywide Financial
Corp. BofA had acquired Countrywide in 2008.
Moreover, earlier this year, BofA agreed to settle its mortgage
dispute with Fannie Mae. The company paid $11.6 billion in total,
which included $6.7 billion of loan repurchases.
Over the last several months, Freddie Mac reached settlements
with Wells Fargo & Company, Citigroup Inc., JPMorgan Chase
& Co. and SunTrust Banks, Inc. The compensation totaled
approximately $2.4 billion.
Such moves by banks demonstrate their aim to resolve all mortgage
related issues, thereby reducing costs over the upcoming period.
Moreover, such settlements are anticipated to aid in the further
revival of the economy. Alongside, these strategic decisions are
expected to bode well for banks and help gain investors'
Fifth Third currently carries a Zacks Rank #2 (Buy).