Fannie and Freddie Seek To Force Banks To Repurchase Flawed Loans (JPM, BAC)
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are seeking ways to recoup the nearly $300 billion in loans that have payments more than 90 days past due, according to reports from the Wall Street Journal.
The two firms have begun sifting through the piles of mortgage files for proof of underwriting flaws. Fannie and Freddie are looking to force banks to repurchase loans that contain improper documentation about the borrower or in some cases outright lies.
"Because taxpayers are involved, we're being very vigilant," said Maria Brewster, who oversees Fannie’s repurchase team. "No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae."
Fannie and Freddie are looking to stay strong amid pressure placed on them by the more than $100 billion in combine taxpayer bailout money received to help the companies from collapsing. The U.S. government took over the two firms in September 2008.
The total that banks had to repurchase in loans from mortgage-backed securities was $14.2 billion in the first nine months last year, nearly four times the total from the same period in the year prior, according to Barclays Capital.
As Fannie and Freddie look to get tough on the banks that sold them the bad loans, the ones that could be hit the hardest include JPMorgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC). These lenders are having loans thrown back to them by holders of mortgage-backed securities who are finding evidence of approval deficiency.
Fannie and Freddie will have to analyze millions of delinquent loans to find those with misrepresentations, while the firms are being far more selective about the loans that get approved. The average credit score for a loan backed by Fannie or Freddie has jumped to 760 from 720 two years ago.
Shares of Fannie are currently valued at $1.02, falling from highs in 2007 before the recession around $67. Freddie has fallen from nearly $64 to $1.21 in the same time period.
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