Home Loans: Bank of America Settles Home Loans Dispute With Freddie and Fannie

January 4, 2011 Updated: January 5, 2011

Home loans from Bank of America that were sold to Freddie Mac and Fannie Mae, which the two companies said were faulty, prompted the bank to pay $2.7 billion to settle the dispute.

Under the agreement, the bank paid $1.34 billion to Fannie Mae and $1.28 billion to Freddie Mac.

With the payment, the bank “extinguishes all outstanding and potential selling representations and warranties claims on 12,045 Legacy Countrywide Loans” for Fannie Mae and Freddie Mac, the company said in a statement.

Following the announcement, the nation’s largest bank’s stock rose more than 6 percent on Monday, after investors rejoiced that the bank wasn't forced to pay more.

"These actions resolve substantial legacy issues in the best interest of our shareholders," Bank of America President and CEO Brian Moynihan said in a statement Monday. "Our goals remain the same: put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times."

According to the Washington Post, the deal is not infallible with Fannie Mae, as the mortgage company could still try to pursue more claims against the bank. For Freddie Mac, the deal closes any potential claims.

Janis Smith, a spokesperson with Fannie Mae, told the Post that it is a “fair and responsible resolution.”