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US banks to pay $20bn over mortgage crisis

Ten US banks have agreed to pay out more than $20bn (£12.4bn) to settle claims arising from the US mortgage crisis.

The Financial Times reports Bank of America has agreed to pay $11.6bn to government-controlled mortgage company Fannie Mae to resolve a long-running legal battle over bad loans.

Fannie Mae executive vice president and general counsel Bradley Lerman says: “A favorable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers. Fannie Mae has diligently pursued repurchases on loans that did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests.”

In a separate settlement, 10 mortgage lenders will pay more than $8.5bn in cash payments and other assistance to regulators in response to claims of deficient practices in mortgage loan servicing and foreclosure processing.

The Office of the Comptroller of the Currency says it has reached an agreement with lenders Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

More than 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers will receive cash compensation.

Bank of America says the payouts are expected to reduce its pretax income by approximately $2.7bn in the fourth quarter of 2012.

Bank of America chief executive Brian Moynihan says: “As we enter 2013, we sharpen our focus on serving our three customer groups and helping to move the economy forward. 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.”

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