Below is a statement received Jan. 22, 2010, from the Federal Deposit Insurance Corp. regarding the Jan. 21 article by the Huffington Post Investigative Fund about FDIC chair Sheila Bair. Responses from the Investigative Fund are in red.

FDIC spokesman Andrew Gray said, “The facts speak for themselves. Chairman Bair received no preferential treatment in her dealings in obtaining these mortgages that were fully documented with large down payments. The terms and rates were available to all eligible borrowers at the time, and were at market rates and were comparable to those offered to her family from other institutions. In addition, it has been determined by the FDIC’s Legal and Ethics Office that the Chairman did not engage in any action that would create a conflict of interest or appearance of a conflict of interest.”

“There is absolutely no evidence of any wrongdoing here. Indeed, all of the facts are on the Chairman’s side. The Huffington Post Investigative Fund should be embarrassed to publish an article that ties together points in time without any regard to merit or context. The Huffington Post Investigative Fund purports to operate under high standards of journalistic integrity, but this “gotcha” piece is specifically designed to mislead and misconstrue the facts. I would urge them to disclose the motivations and discussions that led to this ridiculous article.”

Investigative Fund response: We stand by the story. Many of the points mentioned by the FDIC in this statement were included in the original article. We’ve responded below to points where new information was provided by the FDIC after publication.

The article states:

Huffington Post Investigative Fund: “Sheila Bair, one of the chief regulators overseeing Bank of America’s federal rescue, took out two mortgages worth more than $1 million from the banking giant last summer during ongoing negotiations about the bank’s bailout and its repayment.”

This timeline is flat out wrong. Bank of America received government assistance in late 2008 and early 2009, long before Chairman Bair’s family began discussions with lenders about financing the purchase of a home in Washington. Discussions on TARP repayment did not begin until November of 2009, long after these mortgages were settled.

Investigative Fund response: The timeline is accurate. As reported by Ms. Bair in her congressional testimony, quoted below, the FDIC’s discussions and oversight of Bank of America’s rescue were ongoing throughout 2009.

The FDIC board on Jan. 15, 2009, approved a term-sheet for assistance to Bank of America. Here is how, on Jan. 16, 2009, the FDIC characterized that decision:

“Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Bank of America from the Troubled Assets Relief Program in exchange for preferred stock with an 8 percent dividend to the Treasury. Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.”

According to Sheila Bair’s Dec. 11, 2009, testimony before the House Committee on Oversight and Government Reform, work continued to define the terms of the assistance. She told Congress:

“Work to precisely define the exposures to be included in the ring fence transaction -- and to assure ourselves that the value of the BOA preferred stock the FDIC and Treasury were to receive as compensation for our participation in the ring fence transaction at least equaled the economic value of the risk we were to assume -- had been started before January 16, and it continued well into the spring. However, in early May 2009 BOA asked that the ring fence transaction not be completed. In late summer, an agreement was reached to terminate efforts to complete the ring fence transaction. BOA agreed to pay $425 million as a termination fee of which $92 million was paid to the FDIC.”

The agreement to terminate efforts was signed Sept. 21, 2009, by Bair’s deputy.

Huffington Post Investigative Fund: “In the weeks between the closing on her two mortgage loans, Bair met with Bank of America’s chief negotiator in the bailout talks.”

Her family mortgage terms were locked in for both loans by June 23^rd, 2009. Both mortgages were settled by August 11^th under the same terms previously locked in. The Greg Curl meeting was a courtesy meeting that he requested. There was no discussion of TARP repayment. The substance has been independently confirmed by FDIC staff present at the courtesy meeting. The FDIC was not informed of BofA’s interest in repaying TARP until November 2009, long after the mortgages had been negotiated and settled.

Investigative Fund response: As reported, the mortgage documents show that the loan for the Maryland home closed on July 7, 2009, and for the Massachusetts house on Aug. 24, 2009. The meeting with Curl was on Aug. 11.

As mentioned above, the termination agreement on FDIC assistance to Bank of America was a work in progress until Sept. 21.

While the FDIC says it did not learn of Bank of America’s interest in repaying TARP until November, the Wall Street Journal reported on Sept. 1, 2009 – followed by others -- that the bank had been seeking to repay some of the billions of dollars it had received.

Huffington Post Investigative Fund: “Bair did not seek or receive an exemption until last week, when her agency gave her a retroactive waiver from the rules after an inquiry…”

It has been determined by the FDIC’s Legal and Ethics Office that the Chairman did not engage in any action that would create a conflict of interest or appearance of a conflict of interest. The FDIC’s Chief Ethics Officer determined that she was not involved in any activity that required a waiver. He also determined that during the timeframe of May 1^st 2009 through the present, there was no conflict of interest or even appearance of a conflict of interest.

Huffington Post Investigative Fund: “raise questions about whether she and her husband should have qualified for the terms that they received.”

Huffington Post Investigative Fund: “At the request of the Investigative Fund, a mortgage broker asked two loan officers working at Bank of America if a borrower could qualify for a second-home loan with a renter, using similar details as Bair’s loan involving a separate living quarters for the renters.”

The Chairman’s husband sought quotes from two lenders for these loans. Chairman Bair’s husband took the lead in discussions on both mortgages. The Amherst home was refinanced from a 15-year to a 30-year fixed to lower the payment. After attempts to sell the house failed, Chairman Bair’s family found themselves in the position, like tens of thousands of families across the country, of having to carry two mortgages.

For the Amherst property, a community bank stated that they were willing to view it as “a second home subject to the appraiser confirming that the property has an apartment that was currently being used as a second property.” Both lenders were aware that a portion of the property had been rented, and would continue to be under lease, but the remainder would be available exclusively to the Bair family. Although the interest rate was significantly lower on the community bank offer, the family decided to accept the BofA offer because it provided a 30-year fixed product. Chairman Bair’s family has repeatedly used the apartment for vacation and family visits.

The lenders obviously made their judgments taking into account LTV, credit history and other personal financial information that the Huffington Post Investigative Fund would have been unable to duplicate.

Investigative Fund response: The reporters spoke with several industry sources, about whether Ms. Bair’s Amherst home would qualify for a second-home loan. All of them said it would not qualify.

As reported, the home is listed by the Amherst town assessor as a duplex. That fact alone means that it does not qualify under underwriting rules established by Fannie Mae and Freddie Mac.

The rules also state that second-home mortgages are not allowed for rentals. A couple has been renting the second unit of the Amherst house since 2006.

In addition to the sources cited in the story, we talked to officials at Freddie Mac before the story was published. They told us that a two-unit dwelling would not qualify for a second-home mortgage. As reported, two Bank of America loan officers also told us it would not qualify.

Huffington Post Investigative Fund: “The FDIC’s ethics office, said he had done a review and – without Bair asking – granted her a waiver from the rule retroactive to March 1, 2009.”

She received a determination from the FDIC’s Chief Ethics Officer that during the timeframe of May 1^st 2009, through the present, there was no conflict of interest or even appearance of a conflict of interest. She was not required to notify the Ethics Office of these mortgages until the financial reporting period beginning this month.

Huffington Post Investigative Fund: “The rules state that “No FDIC employee may participate in an examination, audit, visitation, review, or investigation, or any other particular matter involving an FDIC-insured institution….”

The FDIC’s Chief Ethics Officer made a determination that she was not involved in any activity that required a waiver. He also determined that during the timeframe of May 1^st 2009 through the present, there was no conflict of interest or even appearance of a conflict of interest.

Huffington Post Investigative Fund: “Bank of America, among the world’s largest financial institutions, received $45 billion in federal bailout money.”

This was a Treasury TARP decision, supported by BofA’s primary regulators, the Federal Reserve and the Office of the Comptroller of the Currency. That being said, these were all decisions made well before May 1^st 2009, when Chairman Bair’s husband first reached out to lenders, including BofA, on financing a home purchase in Washington.

Huffington Post Investigative Fund: “the FDIC board voted in January 2009 to guarantee more than $100 billion in risky assets held by the bank.”

The ring face transaction referenced here required the FDIC to backstop $2.5 billion in losses, not $100 billion. This is a factual error. In Chairman Bair’s testimony, she indicated that she was reluctant to participate and questioned whether the ring fence was necessary. This backstop was part of a joint Treasury/Fed/FDIC program to stabilize financial markets. Again, this decision finalized in January 2009 was made well before Chairman Bair’s family began discussions with lenders about obtaining a mortgage.

Investigative Fund response: Treasury and the FDIC agreed to guarantee more than $100 billion of the bank’s risky assets, as the timeline published with the Investigative Fund’s article reported. Again, this is how the FDIC characterized the decision in its Jan. 16 press release, which was linked from the Fund's article:

“Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.”

Huffington Post Investigative Fund: “Bair’s deputy signed the agreement on Sept. 21^st, 2009, records show.”

The decision to release BofA from the ring fence occurred on September 21^st, through an inter-agency process, with negotiations led primarily by Treasury. The Legal and Ethics Offices have determined that this was not a particular matter for the Board. As the article indicates, it was signed by the FDIC’s CFO, a long term career government servant.”

Huffington Post Investigative Fund: “By the summer, Bank of America also began pushing for the right to pay back the TARP money…”

The FDIC was not notified about BofA’s interest in TARP repayment until November 11^th 2009. This timeline that is used is flat out wrong. In addition, this whole point is irrelevant because the obligations of the mortgagors (Chairman Bair and her husband) and the mortgagee (BofA) became fixed by June 23^rd at the time of the lock-in.

Investigative Fund response: As noted above, the Wall Street Journal on Sept. 1 reported that Bank of America already was seeking to repay TARP. Also as noted above, the mortgage documents show that the loan for the Maryland home closed on July 7, 2009, and for the Massachusetts house on Aug. 24, 2009.

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