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Lenders Have Failed to Repurchase $11B in Bad Loans from GSEs

Banks that sold bad mortgages to ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com have a contractual obligation to buy the loans back, according to their regulator. But many of the nation's largest institutions aren't living up to their end of that commitment.
[IMAGE] Edward J. DeMarco, acting director of the ""Federal Housing Finance Agency"":http://www.fhfa.gov, told a congressional panel last week that as of the end of the second quarter of 2010, Fannie Mae had $4.7 billion in outstanding repurchase requests, and Freddie Mac had $6.4 billion in outstanding repurchase requests.

More than a third of these buyback requests have been outstanding for more than 90 days, he said, and many of the lenders with aged, outstanding repurchase requests are among the largest financial institutions in the United States.

DeMarco said he's growing increasingly concerned with delays by lenders in repurchasing faulty loans. There are ongoing discussions between the GSEs and lenders to reach a workable solution.

""If these discussions do not yield reasonable outcomes soon, FHFA may look to its supervisory and conservatorship authorities provided under the statute to resolve the situation,"" DeMarco said.

DeMarco says lenders repurchased $8.7 billion of single-family mortgages from Fannie and Freddie in 2009, and


slightly higher volumes are being repurchased in 2010. During the first quarter of this year, banks bought back nearly ""$3 billion in bad home loans"":http://dsnews.comarticles/lenders-repurchase-3-billion-in-mortgages-from-gses-q1-2010-05-20 they'd sold to the GSEs.

Repurchase requirements are one of the avenues FHFA is pursuing to mitigate losses for the nation's two largest mortgage companies and limit the need for capital infusions from the Treasury.

He says loan modifications as a lower-cost resolution than foreclosure, as well as refinancing borrowers into more affordable mortgages are also helping to curb losses for the GSEs.

""FHFA recognizes that losses by the enterprises translate into costs for the taxpayers, and we are doing everything in our power to minimize future losses,"" he said in testimony, noting that the GSEs' single-family credit guarantee business has been the largest contributor to capital deficiencies and the corollary need to draw on taxpayer funds.

Since they were place in conservatorship in September 2008, Fannie and Freddie together have drawn $148 in taxpayer dollars from the Treasury to stay afloat.

Concerns rose late last year when the administration lifted the $400 billion cap on its financial support to the GSEs that the price tag for the two companies' bailout would climb above that.

But DeMarco told lawmakers that he anticipates the cost of propping up Fannie and Freddie to ""remain under $400 billion,"" even if economic conditions suffer ""severe stress.""

""The enterprises' substantial market presence over the last two years demonstrates that they continue to support housing finance in this country despite their financial condition,"" DeMarco said, but he acknowledged that ""neither company would be capable of serving the mortgage market today without the ongoing financial support provided by the Treasury.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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