Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report.

A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.

Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac.

B of A also paid $1.52 billion to Fannie Mae to resolve disputes on $3.1 billion in loans (~49 cents on the dollar). They remain liable for $2.1 billion in repurchase requests, as well as any future demands from Fannie Mae.

My biggest complaint about the GSEs post government takeover is that they have been used as a back door bailout of the banks. This latest deal reconfirms that view.

Its a wonder B o A didn’t rally further than the 6.7% it surged yesterday . . .

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Source:

BofA Deal on Loan-Repurchase Demands Sets ‘Template’ for Banks

Dawn Kopecki and Hugh Son

Bloomberg, January 4, 2011

http://noir.bloomberg.com/apps/news?pid=conewsstory&tkr=BAC:US&sid=aRboobH0Ekv4

See also:

Bank of America Buys Back $2.5 Billion in Mortgage Debt

BEN PROTESS AND ERIC DASH

NYT, JANUARY 3, 2011

http://dealbook.nytimes.com/2011/01/03/fannie-and-freddie-continue-to-collect-on-bad-loans/

Bank of America Pays for Soured Loans

DAN FITZPATRICK

WSJ, January 4, 2011

http://online.wsj.com/article/SB10001424052748704111504576059443159161336.html