Lawmaker calls deal 'backdoor bailout'

LOS ANGELES (CBS) —Taxpayers may have been shortchanged after a deal between failed mortgage giants Freddie Mac and Fannie Mae settled loan disputes with Bank of America Corp. for $2.8 billion rather than demanding more funds, Representative Maxine Waters (D-CA) said.

Waters, a senior Democrat on the House Financial Services Committee, said the settlement “may amount to a backdoor bailout that props up the bank at the expense of taxpayers”.

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The lawmaker representing the cities of Gardena, Hawthorne, Inglewood and Lawndale suggested the move may have been “both premature and a giveaway”.

Under the agreement, Freddie Mac receives $1.28 billion in cash to resolve claims arising from 787,000 loans totaling $127 billion sold through 2008 — losses largely stemming from the mortgage meltdown that has seen foreclosures soar amid largely stagnant property values.

In addition, Bank of America also agreed to pay $1.52 billion to Washington-based Fannie Mae.

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Waters also commented on traders’ reaction to the deal.

“The fact that Bank of America’s stock surged after this deal was announced only serves to fuel my suspicion that this settlement was merely a slap on the wrist that sets a bad example for other negotiations in the future,” said Waters.

Shares of Bank of America jumped 6.4 percent on Wall Street after the deal was announced.

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