Wells Fargo & Company (WFC - Free Report) announced a lawsuit settlement with Freddie Mac 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 crisis.
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 quarter.
Wells Fargo becomes the third Wall Street major, after Citigroup Inc. (C - Free Report) and Bank of America Corporation (BAC - Free Report) , 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).