Review: iPhone 5 not terribly innovative, but still a smart package

The iPhone 5 may be Apple’s most divisive gadget yet. Since it was unveiled last week, tech geeks have derided it as disappointing and lacking in innovation. Without any big new advances, it’s being seen as only an incremental improvement over the previous iPhone, the 4S.

Yet many analysts expect the new device to beat all kinds of sales records. Apple itself on Monday said pre-orders had topped two million in 24 hours, or double what the 4S did in the same amount of time last year.

Evidently, consumers don’t care whether the iPhone is innovative or iterative. In all likelihood, they’re going to make it a huge seller – and thus one of the year’s biggest gadgets – when it’s officially released on Sept. 21.

So, after spending nearly a week with the iPhone 5, how does it stack up?

The guts

The most noticeable change is its size and weight. The iPhone 5 adds an extra half inch to its screen size, bringing it to four inches diagonally, so it’s a little taller and more suitable for watching videos in proper widescreen format. It has the same width, though, so it’s still comfortable to use with one hand – and thumb.

The iPhone 5 isn't a massive progression from the iPhone 4S, but it nonetheless has all the up-to-the-minute features you could want in a smartphone, says tech reviewer Peter Nowak. The iPhone 5 isn’t a massive progression from the iPhone 4S, but it nonetheless has all the up-to-the-minute features you could want in a smartphone, says tech reviewer Peter Nowak. (Reuters )

The weight difference is very pronounced. At 112 grams, it’s 20 per cent lighter than the 4S, but when holding both at the same time, it’s easy to think the difference is even greater. The iPhone 5 is amazingly light and slightly thinner, too, mainly because its main shell is now aluminum, rather than a big chunk of glass.

Apple says its new A6 dual-core processor has twice the power of the previous A5. In benchmark tests using the PassMark app, that certainly appears to be true. The iPhone 5 does everything — from computations to 3D rendering to opening apps — faster than the 4S, in some cases at double the speed.

The new device also boasts eight hours of web browsing time on its cellular connection, versus six on the 4S. The battery did indeed perform better in my tests, but it’s impossible to tell at this point how well it will hold up over time.

The engine

One of the big selling features is Long-Term Evolution (LTE) connectivity, currently being rolled out in Canada by Bell, Rogers and Telus. All three carriers, as well as their respective sub-brands (Virgin, Fido and Koodo), will be selling the iPhone 5 when it launches.

It’s still relatively early for LTE, so speeds are inconsistent. While the networks offer theoretical maximum downloads in excess of 100 megabits per second, Canadian carriers are promising speeds closer to the teens and twenties.

The results I saw in downtown Toronto varied greatly, ranging as low as two Mbps to as high as 22 Mbps. With each attempt, however, I also simultaneously tested the 4S and in almost every case, the iPhone 5 clocked considerably faster speeds.

The dashboard

Pictures taken with the iPhone 5, right, have sharper detail and colours than those taken with the iPhone 4S, left. Pictures taken with the iPhone 5, right, have sharper detail and colours than those taken with the iPhone 4S, left. (Peter Nowak/CBC)

The 4S is renowned for having one of the best – if not the best – cameras on the market (for a phone, of course). Its successor, which has improved image stabilization and better low-light processing, is the new king. The iPhone 5 takes better photos in both bright and low light, with sharper detail and colours. Photos and videos also look crisper on the new device’s screen, which has stronger colour saturation.

One of the best new photo capabilities in the updated iOS 6 operating system — also being made available for older iPhones — is panorama mode, which creates one long horizontal photo. It’s a nifty feature that other phones already have, but it’s fun nonetheless.

One downside to the taller screen is that existing apps are not yet formatted for it, so they float in the centre with black space around them. In the case of a typing-heavy app such as Twitter, it’s easy to misjudge where you’re supposed to tap – I kept missing the space bar with my thumb. It’s a problem that will persist until developers update their apps.

Location, location, location

In the case of maps, the iPhone 5 hits and misses. Since Google and Android are now its mortal enemies, Apple has ditched the Google’s map data in favour of GPS provider TomTom. Devices running iOS 6 will thus have Apple’s new Maps app, which isn’t as good as its Google-based predecessor.

The new app is functional and includes transit stops, but these are incomplete. While there are plenty of streetcar stops marked in Toronto, for example, some subway stations are inexplicably missing. Real-time traffic data, for Toronto at least, is also almost non-existent. It also doesn’t include Google’s popular Street View, so you can’t swoop down to take a pedestrian-level view of locations.

A spokesperson for Google says the company intends to make its mapping data available “regardless of device, browser, or operating system.” If Apple allows it, Google is likely to release its own map app for iOS 6 and fight it out for supremacy. Consumers can only win in such a scenario.

Apple’s app is not without its appeal, though. The “flyover” feature, which renders buildings in photo-realistic three dimensions, is stunning and considerably better than Google’s own version. For Canada, the downtown cores of cities including Toronto, Montreal and Calgary have been rendered.

Future potential

One of the most potentially useful new features of iOS 6 is Passbook, a repository for tickets, coupons and vouchers. Businesses such as airlines, sports teams, retailers and movie theatres can design tickets and email them to iPhone users, who then store them in the Passbook app. The tickets have bar or QR codes for scanning and can be made location-aware. An airline boarding pass, for example, can pop up when it’s close to an airport and stay on the user’s lock screen until used.

There’s no way of knowing which Canadian businesses, if any, will jump on this potential, but it will be great if they do. Having such documents in one place is much more convenient than fishing around in your email inbox for them.

And oh yes, there’s Siri. The robotic voice assistant can now use location data for Canada, so it can tell you where the nearest Thai restaurant or movie theatre is, if asked.

The accessories

The iPhone 5 heralds the launch of Apple’s redesigned “EarPod” headphones. The new ear buds, which look like miniature hair dryers, do indeed provide richer sound than their predecessors.

The most controversial thing about the new iPhone, however, is its connector port, which is a fraction of the size of the one on existing iPhones, iPods and iPads. While the smaller plug, called “Lightning,” is a welcome move, it requires an additional adapter to work with existing accessories such as audio docks and car chargers.

While the majority of cellphone makers are moving toward common mini-USB connectors, Apple still insists on going it alone. Forcing the purchase of new and unique chargers and accessories is bad for consumers and the environment.

The numbers game

There’s no two ways about it: the iPhone 5 isn’t cheap, especially in Canada. Unlocked versions without a monthly contract range from $699 to $899, depending on storage capacity, while signing onto a three-year deal brings the cost down to between $179 and $379.

It’s a small fortune for a phone that Apple is making big profits on. According to Reuters, the company is seeing margins of up to 58 per cent on iPhones, or double what it is making on iPads, which consumers generally don’t buy through wireless providers.

Carriers, who subsidize the phone with contracts, are therefore passing those charges on to consumers. Some have already moved monthly data limits downward on new plans in anticipation of the iPhone 5; while a $50 plan used to net 500 megabytes of usage, it now only gets 100 or 200 MB. However, some are allowing customers to stay on existing plans – it’s best to check before buying.

Canadian carriers are also unique in requiring three-year contracts, with two-year the norm elsewhere. This has spillover effects to other smartphone makers, who believe that if their devices are just as good, they can demand similar subsidies.

Lastly, the list price on all iPhone 5 models is $50 more than in the United States. A spokesperson for Apple didn’t comment on why.

The bottom line

Given the iPhone 5’s sales expectations, it’s clear that many consumers just don’t care about the pricing. It’s simply a must-have gadget.

Other manufacturers’ phones have newer, more innovative technologies in them – wireless charging or near-field communications that allow for data sharing by tapping phones together – but few if any inspire the obsessive devotion that Apple does.

Few have also been able to bundle everything together – music and video content, hardware, software and apps – into a simple and elegant total package. The iPhone 5 may not be terribly innovative, but it does deliver that package better than any previous Apple product, and better than just about any other smartphone.

One of the best new features on the iPhone 5 is the ability to take panoramic photos, like this one shot in Dundas Square in Toronto. One of the best new features on the iPhone 5 is the ability to take panoramic photos, like this one shot in Dundas Square in Toronto. (Peter Nowak/CBC)

Neil Macdonald | The full Romney: a peek behind Mitt’s public mask

Mitt Romney was just being honest in those video remarks that are blazing around the country today. Voters should savour them. They’re a fresh, sweet, breeze of candour, blowing through the stale hothouse of American politics.

Romney, though, probably regards them as some sort of nightmare.

Because that surreptitious camera, pointed at the Republican nominee during a private $50,000-a-plate fundraiser in Florida May 17, has just ripped away the carefully constructed public mask and given voters a peek at what’s underneath.

In Romney’s case, what’s underneath would appear to be a fellow who regards half the American population with contempt.

Actually, Romney named a precise figure: 47 per cent, all of them riding free on a bus powered by other people’s hard work.

“There are 47 per cent who are with [Obama],” Romney says on the video, “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it.”

There it is, unvarnished and without the usual mealy-mouthed polish, from the nominee of a political party that likes to accuse Democrats and liberals of promoting “class warfare.”

Unbelievably candid

Half the voters in the country are whiny victims. It’s almost unbelievably candid.

“These are people who pay no income tax,” he continues. “Forty-seven per cent don’t pay income taxes. So our message of low taxes doesn’t connect. They will be out there selling tax cuts for the wealthy . . .”

Mitt Romney addresses the Republican convention in Tampa in August.Mitt Romney addresses the Republican convention in Tampa in August. (AP)

In saying that, Romney seems to have been relying on a study from the Center for Tax Policy. The 47 per cent is not an economic cohort anyone would want to belong to.

In 2011, said the study, a family with two children making less than $26,400 a year would pay no taxes because of the $11,600 standard deduction, plus four individual exemptions of $3,700 each.

What Romney didn’t mention is that that family is already sending Washington tax money, in the form of the rather steep payroll taxes that fund Social Security and Medicare.

But it’s pretty clear what he thinks of them. Again, that’s the beauty of this video. He draws a bright, clear line: There are Americans who contribute, and Americans who freeload.

Now, remember whom Romney was addressing. He was in a comfort zone, talking to like-minded souls who, like Romney, are wealthy, and probably living at least partially off investment income that is lightly taxed, and who want to keep it that way. Actually, I shouldn’t state that flatly. Romney has acknowledged he has income on which he pays only 15 per cent tax because it is from investments, but, unlike Barack Obama, he is keeping his tax returns a secret, making a full assessment impossible.

But Romney is otherwise transparent. He has just told 110,245,080 American voters (the 47 per cent) not only what he thinks of them, but what he thinks of their piffling votes.

“My job is to not worry about those few. I’ll never convince them to take responsibility and care for their lives.”

He might have something there, about their relative importance in the democratic process. The U.S. Government’s Census Bureau says people making over $100,000 a year are more than twice as likely to vote than those making under $20,000 a year.

Honesty nuggets

The video is a goldmine of other honesty nuggets. Americans who voted for Obama in 2008, says Romney, “don’t want to be told that they were wrong, that he’s a bad guy, that he did bad things, that he’s corrupt.”

Again, at least it’s now right out there. Romney, floating the notion that Barack Obama, a man generally regarded as squeaky clean, like Romney himself, is in fact corrupt. Choose accordingly.

There was even new information on the Mideast policy President Romney would follow.

It’s pretty simple, he told the fundraiser: “The Palestinians have no interest whatsoever in establishing peace.”

So, he would clarify U.S. policy on Palestinian statehood.

“I look at the Palestinians not wanting to see peace anyway, for political purposes, committed to the destruction and elimination of Israel, and these thorny issues, and I say, ‘There’s just no way.’”

That said, he concedes that diplomacy has to be more nuanced: “So what you do is you say, ‘You move things along the best way you can’ .… We kick the ball down the field and hope that ultimately, somehow, something will happen and resolve it.”

Not a bad description of what’s been going on for decades, actually.

‘Not elegantly stated’

Romney’s initial reaction to the Samizdat video was to acknowledge his statements were “not elegantly stated.” He also urged whomever has the video to put out the entire thing.

That has now happened and it’s not sitting well with right-wing conservatives who disliked Romney in the first place, and have always harbored doubts about his ability to win. Bill Kristol, the prominent neoconservative who was one of the first to endorse Sarah Palin, has already called Romney’s remarks “arrogant” and “stupid.”

The Obama campaign welcomed the fundraiser performance with barely disguised glee, and turned it into a campaign ad within hours. It’s amazing how fast these ad guys can move.

But the American public should welcome it, too. That video provided more insight than any of the speeches and choreographed events at those endless conventions in Florida and North Carolina.

Barack Obama went through a similar experience last election, in the leaked video where he talked about bitter conservatives embracing God and guns. It was a moment that put into better perspective a candidate who’d been blathering endlessly about how there aren’t Republican Americans and Democratic Americans, only American Americans.

Now Romney has his moment. Democracy is a glorious thing.

Blue Jays suspend Yunel Escobar 3 games for anti-gay slur

Toronto Blue Jays shortstop Yunel Escobar will miss this week’s three-game series against the hometown New York Yankees for an anti-gay slur written under his eyes during a Sept. 15 home game against Boston.

The three-game suspension, which begins Wednesday in the first of two games as part of a day/night doubleheader following Tuesday’s rainout, was meted out by the team after being agreed upon after Escobar met with Blue Jays management, Major League Baseball and the MLB Players’ Association.

“I apologize to the Jays fans and baseball fans in general. It wasn’t anything personal, it was something I always do with the stickers on my eyes,” Escobar said through an interpreter at a news conference at Yankee Stadium.

“I regret what happened and this is something that will never happen again. It is a lesson I learned and I will never commit again.”

Escobar played Saturday’s home game against Boston with a homophobic slur written in Spanish on the black sun glare stickers under his eyes. The words were “TU ERE MARICON,” which can be translated as “You are a fa–ot.”

“Tu wasn’t anyone, when I meant ‘you’ I wasn’t referring to anyone specifically. It’s just a word,” said Escobar, adding he wrote the words 10 minutes before first pitch.

Some Spanish-speaking people have said since the incident that the phrase is sometimes used, particularly by men, in a joking way, not in a literal form intended to insult.

‘A joke between players’

“That word doesn’t have the same significance that we [Latinos] put into it. That’s a word we use often among players,” said Escobar. “It was a joke between us players, it wasn’t the first time I write something on the stickers. It wasn’t directed at anybody specifically.

‘I have several friends that are gay. And they haven’t felt offended about the situation. This is just a language misunderstanding.’— Blue Jays shortstop Yunel Escobar

“It went from a joke to a big problem and I never thought it was gonna become something bad and people would take it this way. I agree with the suspension and I don’t have a problem with it.”

Escobar told reporters he has nothing against the gay community and nothing against those who were affected by his comments.

“I have close friends that are gay,” he said, “my home decorator is gay, my hair stylist is gay and I have several friends that are gay. And they haven’t felt offended about the situation. This is just a language misunderstanding.”

Baseball commissioner Bud Selig said the league supports Tuesday’s decision to suspend Escobar.

‘“Major League Baseball commends [the Blue Jays] for handling this situation appropriately and promptly. Mr. Escobar has admitted that his actions were a mistake and I am hopeful he can use this unfortunate situation as an opportunity to educate himself and others that intolerance has no place in our game or society.”

Escobar will participate in an outreach initiative to help educate society about sensitivity and tolerance to others based on their sexual orientation, and also attend a sensitivity training program in accordance with the Blue Jays and MLB.

You Can Play, an organization dedicated to eliminating homophobia in sports, was founded by Patrick Burke, the son of Toronto Maple Leafs general manager Brian Burke.

Patrick Burke said via Twitter he was satisfied with how the Jays handled the situation.

“Combined discipline with education to ensure everyone learns from this,” he tweeted.

Escobar made his big-league debut with Atlanta in 2007 and was traded to the Blue Jays in 2010.

Escobar is batting .259 this season with nine home runs and 49 runs batted in.

With files from The Canadian Press

CAW optimistic about talks with GM

The head of the Canadian Auto Workers union expects to see a new contract proposal from General Motors and expressed optimism Tuesday that a tentative deal could be reached soon.

“The best thing I can say is we’re having constructive discussions with General Motors today and there’s a similar feeling of optimism at Chrysler at the subcommittee level, although there hasn’t been a lot of work at the senior levels,” CAW president Ken Lewenza told reporters.

Discussions with both automakers will continue through the night.

Lewenza told CBC News earlier that the union doesn’t want to strike at Chrysler and GM, but it will if forced. He said there is too much at risk for the company and union. So he extended the negotiation deadline indefinitely.

“There’s a tremendous amount of momentum building for General Motors and Chrysler,” Lewenza said. “We don’t want to stop that momentum.”

Earlier this year, GM regained its crown as the world’s top-selling automaker, and Chrysler has posted 29 consecutive months of year-over-year sales gains through August.

Lewenza called Chrysler’s recovery “miraculous.”

It was business as usual Tuesday at the Big Three U.S. automakers across Ontario after the CAW reached a tentative four-year deal with Ford on Monday.

However, the risk of a strike at Chrysler and GM plants in Canada remains, the CAW has warned. Lewenza again Tuesday called a strike “the last tool in the toolbox.”

Chrysler workers were back on the line Tuesday as the company reviewed the Ford deal.Chrysler workers were back on the line Tuesday as the company reviewed the Ford deal. (Canadian Press File Photo)

The strike deadline at GM and Chrysler was extended indefinitely, and hourly employees returned to work under the old collective bargaining agreement.

Lewenza said GM and Chrysler executives wanted to further review the deal struck with Ford.

“It made a tremendous amount of sense,” Lewenza said of the companies’ request.

Lewenza called the extension “a good-faith gesture” but added good faith must lead to good results.

As long as progress is being made, the negotiations will continue.

“If it takes us a day or two or even three days, we will do it, but if we believe at any time, during the course of the next two or three days, that the company’s procrastinating and not responding in good faith, we will give them notice that within 24 hours, we will have to withdraw our labour,” Lewenza said.

However, Dino Chiodo, the CAW’s chair of the Chrysler bargaining committee said the union would like to avoid a strike.

“The intent is not to withdraw our labour,” Chiodo said. “The intent is to try to get a collective agreement, making sure that we’re focusing on the initiatives that are important to our members, first and foremost. Right after that is to make sure that we maintain the competitiveness of the corporation.”

‘Damn good’ Ford deal

Chrysler and GM have agreed to work within the framework of the Ford deal.

Lewenza called it “a damn good deal in these economic times.”

The Ford deal includes no wage increases and no improvements in the cost-of-living adjustment until 2016. The workers instead will receive lump sum payments of $3,000 upon ratification of the deal and then $2,000 in each of the remaining three years.

New hires will make 60 per cent of full pay. The “full pay” level would be reached after 10 years, up from six years in the last collective agreement. New hires will also be enrolled in a hybrid pension plan, rather than the defined benefit plan that current workers have.

Ford also promises to create 600 new positions, mainly in Oakville. There is no new engine production slated for Windsor.

Chris Taylor is a CAW negotiator and president of the local representing Ford workers in Windsor. He’s confident the employees will vote in favour of the agreement.

“Our members knew going in that we weren’t going to be getting everything back from 2008-2009,” Taylor said. “The expectations were modest.”

Darlene Costello works on the line in Windsor. She’s happy with the deal.

‘I’m relieved we finally have a deal.’— Darlene Costello, Ford worker

“I’m relieved we finally have a deal. A lot of people were stressed out about it,” she said. “I think it’s a good thing. We really need jobs in this area.”

A Ford of Canada official says the tentative deal provides a “unique to Canada solution that will improve the competitiveness of the Canadian operations, while providing employees the opportunity to earn a good living.”

The union has scheduled ratification meetings for Sept. 22 and 23. Taylor and Lewenza are confident the Ford employees will vote in favour of the tentative deal.

A labour analyst, however, said the deal between Ford and the CAW shows the weakened state of labour unions in Canada.

Charlotte Yates, a professor at McMaster University, said the CAW never would have agreed to that deal five years ago.

“This is certainly an indication … the CAW, like all unions, has been really constrained,” Yates said. “They got a good deal in the context of those constraints, but it is constraint nonetheless, because they’ve agreed to things a few years ago the CAW, I don’t think, imagined it would ever agree to.”

Yates predicted GM and Chrysler will follow the pattern set by the Ford deal.

Is the deal struck between the CAW and Ford a fair one for both sides?

With files from The Canadian Press

Spain: Bank bad debt hits record levels

The announcement will add to the pressure on Spain’s Prime Minister Mariano Rajoy to ask for international aid, paving the way for the European Central Bank to buy his government’s bonds.

The news that so much Spanish bank debt is in arrears will also prompt questions about whether the previous €100bn (£80bn) bailout of the banking sector, requested in June by Mr Rajoy, will prove sufficient.

The results of a final EU stress test on Spain’s banks are due to be published on 28 September, and this will decide which institutions will need bailout cash. Some analysts suggest up to €60bn will be needed almost straight away.

The yield – or interest rates demanded by investors – at Spain’s latest debt sale yesterday fell slightly from last month but remained at 2.835 per cent on the 12-month bill and at 3.072 per cent on the 18-month paper, offering little hope the country can finance itself at reasonable levels without seeking assistance. The yield on the benchmark 10-year bond also rose to just over 6 per cent.

Giant wind farm spins closer to launch

was appointed as the preferred bidder for the scheme’s high-voltage power link.

Blue Transmission, a consortium which also includes the Australian infrastructure fund Macquarie Capital and Mitsubishi Corporation, has been selected by energy regulator Ofgem to own and operate the multi-million-pound transmission link that will transport power from the London Array offshore wind farm in the Thames Estuary.

The wind farm, which will be the world’s biggest, is being developed by Dong Energy, E.ON and Masdar and will eventually supply enough electricity to power a quarter of London’s homes.

The first phase of the £1.7bn project will use 175 turbines to generate 630 megawatts of power – equivalent to the output of a small gas or coal-fired power station and enough to supply some 470,000 homes. The second phase will bring the total to 217 turbines, generating 1,000 megawatts – enough power for 750,000 homes.

Each turbine will tower 147 metres above the shallow waters between Kent and Essex.

The first phase of the project is nearing completion and is due to come on-stream next spring.

BHP Billiton freezes executive pay to cut costs

Six weeks after announcing the chief executive Marius Kloppers would forgo his bonus for the year to 30 June, 2012, BHP said his base pay would be frozen this year, along with that of all senior management.

Despite waiving his bonus, Mr Kloppers received $9.82m (£6m) in salary, retirement benefits and a long-term incentive plan – 15 per cent less than the year before. Mr Kloppers said last month he would forgo his bonuses after BHP wrote down the value of its shale gas assets in Arkansas by $2.84bn, 18 months after buying them for $4.75bn. .

IP injects £½m for revolutionary monitoring device

The device, which uses a webcam and computer software, allows medical staff to measure heart rate, respiratory rate and, uniquely, oxygen saturation.

The package could cut back on the need for patients to make repeated visits to doctors. It also has possible applications in gyms and rest homes.

The device has been developed by Oxehealth, a commercial spin-out from Oxford University’s Institute of Biomedical Engineering.

Fannie Mae paid BofA premium to transfer soured loans: regulator

Tue Sep 18, 2012 12:10am EDT

(Reuters) – Fannie Mae agreed to pay Bank of America Corp about 20 percent more than it was contractually obligated to last year in order to transfer the servicing of troubled loans to another firm, a report by a watchdog found.

In a report to be issued on Tuesday, the inspector general for the Federal Housing Finance Agency urges the regulator to ensure Fannie Mae applies more scrutiny to the pricing of such transactions and possibly revise its contracts with mortgage servicers.

“FHFA should ensure that Fannie Mae does not have to pay a premium to transfer inadequately performing portfolios,” the report says, referring to the regulator of Fannie Mae and sibling Freddie Mac.

The watchdog, however, called the effort to shift troubled loans to companies more skilled at working with borrowers a “promising initiative” that could reduce loan losses for government-controlled Fannie Mae and taxpayers. It could also reduce foreclosures.

The FHFA inspector general scrutinized the $512 million payment Fannie Mae agreed to make to Bank of America in August 2011 after members of Congress asked for a review. Some critics viewed the deal as a back-door bailout that allowed the second-largest U.S. bank to shed poor-performing mortgage loans – and get paid for it.

At issue is a program in which Fannie Mae sought to reduce losses on troubled loans by bringing in specialized firms to handle payment collection and loan modifications.

Banks make mortgages and sell them to Fannie Mae and Freddie Mac, which package them into securities for investors. Mortgage servicers such as Bank of America, however, continue to administer payments sent in by borrowers. Fannie Mae can shift loans handled by one servicer to another, but has to pay a termination fee to do so if the move is deemed “without cause.”

In January 2011, Fannie Mae started discussions with Bank of America about buying the mortgage servicing rights to 384,000 loans with an unpaid principal balance of about $74 billion, according to the report.

Fannie Mae had projected losses of about $11 billion on the loans, but determined it could get savings of up to $2.7 billion by transferring them to another servicer. Fannie Mae concluded that the bank’s overall service was below average compared with its peers, but it had not determined the bank to be in breach of its contract, according to the report.

Eventually, Fannie Mae agreed to pay a termination fee of $512 million to Bank of America, about $85 million more than it had to under its contract, according to the report. The bank had balked at a lower price and would have been allowed to delay the sale for up to three months as it sought another buyer.

At the time, the FHFA reviewed the deal and was concerned about the premium, according to the report. The regulator had previously raised concerns about similar transactions, determining Fannie Mae “routinely paid more than the contractually specified fee for terminations without cause.”

In a July 2011 email, one FHFA official wondered whether Fannie Mae squeezed Bank of America hard enough on price considering the bank was benefiting by “getting this stuff off their books.” In an email to FHFA, Fannie Mae argued it agreed to pay the premium for a number of reasons, including avoiding possible lawsuits with the bank, according to the report.

Ultimately, the regulator did not object to the sale after Bank of America agreed to refund about $70 million of the purchase price if Fannie Mae did not realize sufficient savings from the deal. When all transfers were completed, Fannie Mae ended up paying a total of $421 million to the bank because of a reduction of the number of loans in the portfolio.


In its report, the inspector general found that the concept behind the program – to reduce credit losses – was “essentially sound.” But it agreed with an internal Fannie Mae audit that raised questions about controls on the program. For example, Fannie Mae relied on a single contractor to come up with prices for most of the transactions.

The amount paid to the bank was similar to earlier deals, which carried an average premium of about 15 percent, according to the report. Since the Bank of America transaction, Fannie Mae has not made any more payments to transfer mortgage servicing rights, the inspector general found.

In a response included with the report, FHFA agreed that Fannie Mae should not pay excessive premiums to transfer poorly performing portfolios. The regulator said its supervision of Fannie Mae has and will continue to include reviews of the process for determining the price of “significant portfolio transfers.”

The FHFA inspector general issued a report last week that also stemmed from a Bank of America agreement with one of the U.S. mortgage finance companies.

The watchdog found that Freddie Mac will recover up to $3.4 billion more from banks after it began to better scrutinize soured loans for defects that could require banks to buy back the mortgages. The stepped-up loan reviews came after the inspector general raised questions last year about a settlement Freddie Mac reached with Bank of America to resolve mortgage repurchase claims.

The Charlotte, North Carolina-based bank has struggled with mortgage losses after buying subprime lender Countrywide Financial in 2008.

(Reporting By Rick Rothacker in Charlotte, North Carolina. Editing by Andre Grenon)