Wells Fargo & Company
) announced a lawsuit settlement with
) worth about $869 million. The settlement includes the
resolution of all outstanding and potential repurchase claims
relating to misrepresentation of loans originated and sold by
Wells Fargo directly to Freddie Mac before 2009.
The Calif.-based banking major will shell out $780 million in
cash to Freddie Mac, inclusive of adjustments related to credits,
coupled with previous buybacks. Freddie Mac and Fannie Mae, both
of which received government bailouts in 2008, have pressed banks
to buy back mortgages that defaulted during the U.S. housing
For Wells Fargo, mortgage repurchase claims could prove to be
costly. According to its quarterly filing made with the
Securities and Exchange Commission in August, the bank's losses
might exceed the recorded mortgage repurchase liability by as
much as $2.6 billion in the third quarter, up 13% from the prior
Wells Fargo becomes the third Wall Street major, after
Bank of America Corporation
), to resolve legal issues related to faulty mortgages sold to
Fannie Mae and Freddie Mac.
Last week, Citigroup announced a settlement with Freddie Mac
worth about $395 million. The settlement includes the resolution
of all outstanding and potential repurchase claims relating to
the misrepresentation of loans originated and sold directly to
Freddie Mac by Citigroup from 2000 to 2012.
Similarly, BofA announced an agreement with Fannie Mae worth
about $10.3 billion in January this year. It included the
resolution of all outstanding and potential repurchase, along
with other claims relating to all major residential mortgage
loans originated and sold directly to Fannie Mae by BofA from Jan
1, 2000 through Dec 31, 2008.
The settlement by Wells Fargo depicts its efforts to resolve all
mortgage-related issues, and thereby reduce costs in the coming
months. Moreover, such agreements will likely help revive the
economy, and bode well for the company as well. Wells Fargo
currently carries a Zacks Rank #3 (Hold).
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