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Bank of America pays settlement to Fannie Mae for bad mortgages

Although a majority of people in California and beyond heard about the mortgage crisis affecting banks and mortgage lenders across the nation over the last few years, very few people knew exactly how and why this crisis was happening in the first place.

A recent settlement by Bank of America may be able to highlight why this was a crisis and why it's important for investors to do thorough background checks on companies before purchasing them.

Between 2000 and 2008, Countrywide-a major mortgage lender who was purchased by Bank of America in 2008-sold many of its mortgages to other mortgage companies like Fannie Mae and Freddie Mac. But when people began defaulting on their loans, investors quickly began realizing that their investments hadn't been as sound as they had initially thought.

On the verge of bankruptcy, the government stepped in, pouring billions into the floundering investors as they struggled to get their lenders to pay up for the bad loans. Recently, Bank of America finally settled a long-standing argument between Fannie Mae who says that Bank of America is responsible for Countrywide's dishonesty when it came to the quality of its loans.

In the settlement agreement, Bank of America has agreed to pay Fannie Mae back approximately $6.75 billion in residential mortgage loans as well as an additional $3.6 billion in cash. According a Bank of America's chief executive, "Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time."

Source: The Los Angeles Times, "Bank of America to pay Fannie Mae $10 billion in loan settlement," Jim Puzzanghera, Jan. 7, 2013

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