Wells Fargo (WFC) said Wednesday that it won’t follow Bank of America (BAC) in reaching settlements with Fannie Mae or Freddie Mac on disputed mortgages sold to the mortgage financing giants.
On Dec. 31, Bank of America, based in Charlotte, N.C., paid $2.6 billion to the federal mortgage giants to settle their claims. The agencies wanted Bank of America to buy back thousands of loans that Countrywide Financial Corp. had sold them that may have contained false or improper documentation.
Bank of America, eager to cap its potential liability, reached settlements with government-owned Fannie and Freddie that prompted one analyst to call it a “gift” and a California congressional representative to describe it as a “backdoor bailout.”
However, Wells Chief Financial Officer Howard Atkins said the settlements reached by its competitors may not be as generous as some perceived them to be.
Atkins pointed to the San Francisco bank’s $1.29 billion reserve that would help cover possible mortgage repurchases.
Wells said in its fourth-quarter financial report issued Wednesday that demands for repurchases from Fannie and Freddie fell for the second consecutive quarter, and now stands at $1.5 billion.
Fannie and Freddie demanded that Wells Fargo repurchase 6,501 loans at the end of 2010, down from 9,887 at the end of the third quarter and 12,536 loans at the end of June.
Wells faced total repurchase demands, which includes those coming from private investors and mortgage insurers, on more than 12,600 loans for almost $3 billion in original face value.
Wells may also feel that it avoided some of the worst practices in the mortgage boom so that it’s repurchase liabilities could be less than rivals.
“The quality of our securitizations was of a much higher caliber than all of the other large bank peers,” Atkins told Bloomberg News on Wednesday. “It doesn’t make sense for us to pay up to get rid of the remaining small amount of problems we have.”
The bank released $850 million that it had set aside for future loan losses, a sign that it expects borrowers will continue to repay loans at improved rates in the year ahead. Atkins says he expects Wells Fargo to release more reserves in future quarters, unless there’s a dip in the economy.
The bank’s fourth-quarter charge-offs and allowance for future losses declined from the same quarter a year earlier, though they remain higher than average. Atkins said the bank’s fourth-quarter charge-offs were 29 percent below the peak a year ago and continue to decline. Loans 90 days past due or more and short-term delinquencies also declined in the fourth quarter.
Atkins said the improving loan results are attributed to the bank’s strategy to get rid of high-risk loans, such as the Pick-A-Pay mortgage loans it inherited when it purchased Wachovia Corp.
Wells Fargo is the second-largest bank in Atlanta with 200 branches and $21.8 billion in deposits.
