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Wells Fargo in Settlement with FHFA

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Wells Fargo & Company (WFC - Free Report) announced a settlement with the Federal Housing Finance Agency (FHFA) – conservator of Government Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae. The settlement is related to the sale of home loans and mortgage backed securities (MBS). Wells Fargo had to shell out a sum of less than $1 billion for the settlement.

Wells Fargo was the only major U.S. bank that was not imputed in the FHFA lawsuit. The FHFA sued 18 international institutions for selling faulty mortgages and securities to Fannie Mae and Freddie Mac. Wells Fargo managed to evade the lawsuit as its lawyers were already in negotiation with the FHFA regarding a settlement.

Notably, the penalty for Wells Fargo is considerably lower than that of its Wall Street peer, JPMorgan Chase & Co. (JPM - Free Report) , which agreed to pay $4.0 billion to FHFA. Earlier this year, UBS AG (UBS - Free Report) and Citigroup Inc. (C - Free Report) also settled their cases with the FHFA.

In October, Wells Fargo announced a settlement with Freddie Mac worth about $869 million. The settlement included 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 lawsuit settlement by Wells Fargo reflects the bank’s aim to resolve all mortgage-related issues, and thereby reduce costs over the upcoming period. Moreover, such agreements are expected to help revive the economy and hence bode well for the bank.

Wells Fargo currently carries a Zacks Rank #3 (Hold).

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