With home loans going bad at a still-staggering pace and losses mounting for the GSEs, the nation's two largest mortgage financiers are pursuing several avenues to recover money, including returning poorly underwritten[IMAGE]loans to lenders. During the first three months of this year, ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mae"":http://www.freddiemac.com required lenders to buy back $3.1 billion in mortgages they'd sold to the two firms.
Lenders repurchased approximately $1.8 billion in loans from Fannie in Q1, measured by unpaid principal balance, according to a recent filing by the GSE with the Securities and Exchange Commission (SEC). During the same period last year, Fannie forced lenders to buy back $1.1 billion in bad loans.
""We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage,"" Fannie wrote in the regulatory filing.
Freddie Mac sent $1.3 billion in faulty home mortgages back to the loan sellers during the January to March period, the GSE said in its Q1 SEC filing. That compares to repurchases of $789 million during the first quarter of 2009.[COLUMN_BREAK]
""We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our mortgage seller/servicers, including non-performance of their repurchase obligations arising from breaches of the representations and warranties made to us for loans they underwrote and sold to us,"" Freddie Mac explained in the regulatory document.
Freddie says some of its seller/servicers failed to perform their repurchase obligations due to lack of financial capacity, and many of the larger seller/servicers have not completed their buybacks Ã¢â‚¬Å“in a timely manner.Ã¢â‚¬Â
Ã¢â‚¬Å“As of March 31, 2010 and December 31, 2009, we had outstanding repurchase requests to our seller/servicers with respect to loans with an unpaid principal balance of approximately $4.8 billion and $3.8 billion, respectively,Ã¢â‚¬Â the GSE said.
As of the end of March, approximately 34 percent of FreddieÃ¢â‚¬â„¢s outstanding purchase requests were more than 90 days past due.
Ã¢â‚¬Å“Our credit losses may increase to the extent our seller/servicers do not fully perform their repurchase obligations,Ã¢â‚¬Â Freddie Mac wrote in the filing. Ã¢â‚¬Å“Enforcing repurchase obligations with lender customers who have the financial capacity to perform those obligations could also negatively impact our relationships with such customers and ability to retain market share.Ã¢â‚¬Â
According to regulatory filings made by the GSEs earlier in the year, the two companies are expecting to return as much as $21 billion in home mortgages to banks in 2010. The nationÃ¢â‚¬â„¢s four largest lenders Ã¢â‚¬" Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase Ã¢â‚¬" are the largest sellers of home loans to Fannie and Freddie and will likely take the biggest hits.
A recent report from _Bloomberg_ noted that these banks sell mortgages to the GSEs at full value, which means they must buy them back at full value. But the news agency says at least one bank, JPMorgan Chase, says most of the loans repurchased must be immediately written down, sometimes by as much as 50 percent.