Bank of America has reached a multi-billion-dollar settlement with the government-backed US mortgage lender known as Fannie Mae. It's a deal that ends years of legal wrangling between the two over who is liable for tens of thousands of loans which American homeowners failed to repay. Under the terms of the settlement, Bank of America is paying Fannie Mae several billion dollars and buying back 30,000 home loans. In total the deal will cost the bank some $11 billion. So how did Bank of America get itself into this mess in the first place? Over to Professor Bill Brown of Duke University in the US.
Fannie Mae and Freddie Mac obviously had been generating, originally they were set up to generate high-quality debt and ultimately they started investing themselves in subprime debt. Countrywide was one of the biggest originators of subprime debts. So in 08 when the fed came along and was trying to clean up the banking system, they knew that they needed to have someone take over Countrywide. And so Bank of America actually came in as somewhat of a white knight to take Countrywide off the country's hands and try to rehabilitate Countrywide and all the mess it had created.
