Mortgage giant Fannie Mae has cost taxpayers more than $200 billion in bailout money since the 2008 financial crisis. That’s because the firm, which boxes up mortgages and sells them as securities, bought rotten loans from the likes of Bank of America (and its rogue Countrywide unit).

So you should understand why it put us in a sour mood when Bank of America announced on January 7 that it would write a check for $3.5 billion to settle Fannie Mae’s debt with the taxpayers.

Today, Public Citizen asked the Office of the Inspector General for the Federal Housing Finance Agency (FHFA) to investigate how the government decided this settlement was “in the best interests of taxpayers,” as FHFA acting director Edward DeMarco declared. FHFA runs Fannie Mae as its legal conservator.

Terms of this January 7 deal demand careful scrutiny. Under the terms, Bank of America will make a cash payment of $3.55 billion to Fannie Mae. Stunningly, Fannie Mae claims this agreement will cover the $1.4 trillion worth of mortgage loans it bought from Bank of America.

The $3.5 billion settlement amounts to only one fourth of one percent of the $1.4 trillion in loans.

The Office of the Inspector General has already found that “the 12 million underwater homeowners now have an aggregate negative equity of $700 billion.” That is to say, the wizards of Wall Street somehow collectively made loans in excess of $700 billion more than the market value of the homes.

Countrywide and Bank of America were among the largest originators of mortgage loans in the nation, and a represent a substantial portion of those underwater loans. A Justice Department lawsuit filed in October alleges that more than a third of the mortgages that Bank of America’s Countrywide unit sold to the likes of Fannie Mae suffered “material defects.”

This is the debt Fannie Mae seeks to settle with a one fourth of one percent return on investment for taxpayers.

Read Bart Naylor’s letter to the Federal Housing Finance Agency Office of Inspector General urging an investigation into the settlement.

Bartlett Naylor is Public Citizen’s financial policy reform advocate. You can follow him on Twitter at @BartNaylor.

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