Banks Face Fight Over Mortgage-Loan Buybacks; Fannie and Freddie Work to Push Bad Loans to Originators; a Search for Applicants' Lies
Author: Nick Timiraos; Aparajita Saha-Bubna</br></br>While mortgage delinquencies are easing, banks are facing a new round of losses from loans made just before the financial crisis, and the fight to keep them off their balance sheets is intensifying.</br></br>Leading the charge to make originators repurchase their loans are Fannie Mae and Freddie Mac, the two government-owned finance agencies that guaranteed the mortgages. The firms are sorting through delinquent loans for signs of any violations of the representations and warranties, known as "reps and warranties." In essence, they are looking for lies made by borrowers or lenders in loan applications.</br></br>Freddie last week said it would begin taking tougher action against banks that drag their feet on buybacks as it renegotiates its contracts to renew loan-sales agreements from those banks. Freddie said it had received $2.7 billion from lenders on repurchases during the first half of the year, up from $1.7 billion in the year-earlier period. The number of repurchase requests that haven't yet been satisfied jumped to $5.6 billion at the end of June, up from $3.8 billion six months earlier.</br></br>While the company isn't likely to cut off its partners, it could use those renegotiations to force banks to settle up on repurchases.