NEW YORK (
(WFC) on Monday announced an agreement to pay
(FNMA) $591 million to settle "substantially all repurchase liabilities" for loans sold by the bank to the government sponsored mortgage giant before 2009.
After credits for loans Wells Fargo had already bought back, Wells Fargo made a cash payment to Fannie of $541 million, for which the bank had already set aside reserves before Sept. 30.
Fannie Mae and its sister government sponsored enterprise (GSE) Freddie Mac (FMCC) were taken under government conservatorship at the height of the credit crisis in September 2008. The U.S. Treasury holds $117.1 billion in senior preferred Fannie Mae shares and $72.3 billion in senior preferred Freddie Mac shares. Under their modified bailout agreements, the GSEs must pay all earnings to the government in excess of minimal capital cushions of $3 billion apiece. Including their December dividend payments, the government has received $185.3 billion in dividends from Fannie and Freddie, for a five-year investment of $189.4 billion.
But there's no mechanism in place for either GSE to repurchase any government-held preferred shares. Several institutional investors holding junior preferred and/or common shares of Fannie and Freddie have sued the government over what they say has been an illegal seizure of their property.
Consumer advocate Ralph Nader is firmly on the side of the GSEs non-government shareholders.
Since the GSEs' primary business is buying newly originated mortgage loans from U.S. banks large and small, Fannie and Freddie have been pressing claims against bank for years, seeking the repurchase of loans they bought from banks before the bursting of the credit bubble during 2008.
Large mortgage putback settlements this year have included Bank of America's (BAC) $10.3 billion agreement with Fannie Mae in January.
The GSEs also took major losses on the purchase of mortage-backed securities that had been packaged by banks. The Federal Housing Finance Agency (FHFA) -- which regulates Fannie and Freddie -- sued 17 major banks (Wells Fargo was not included) in September 2011, alleging violations of securities laws in connection of MBS sales to the GSEs.
Major recent settlements related to the FHFA lawsuit include an agreement by JPMorgan Chase (JPM) in October to pay $5.1 billion to the GSEs, and Deutsche Bank's (DB) $1.9 billion settlement on Dec. 20.
Wells Fargo's shares were up a penny in morning trading Monday, to $45.51, while Fannie Mae's shares were up 1% to $3.04.
>Contact by Email.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV