Fannie and Freddie seek to Hold Banks Accoutable for Bad Mortgages

Posted by Kendall Harmon

It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders.

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

"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."

Read it all from the weekend Wall Street Journal.

Filed under: * Culture-Watch • Law & Legal Issues • * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Bank Bailout Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government

5 Comments
Posted February 1, 2010 at 12:00 am [Printer Friendly] [Print w/ comments]



1. AnglicanFirst wrote:

How about holding Franks of MA and Dodd of CT responsible?

February 1, 1:01 am | [comment link]
2. Br. Michael wrote:

Would be nice, but don’t count on it.  By the way this is no worse than an insurance company looking for fraud on an insurance policy application.  The idea is to avoid paying the claim.

February 1, 6:29 am | [comment link]
3. Chris wrote:

Earth to Maria Brewster, why did F/F buy the “bad loans?”  Did the banks put a gun to their head?  No, but Dodd and Franks figuratively did, and that’s where this whole mess started, with politicians who decided virtually anyone should be able to have a mortgage.

February 1, 10:24 am | [comment link]
4. Bill Cavanaugh wrote:

My own reaction is ‘good for Maria Brewster’.  The banks KNEW that those loans were garbage and just passed them on.  This is far better than the only other option, a Federal bailout of F/F, letting the banks off the hook entirely.

February 1, 10:59 am | [comment link]
5. Jim the Puritan wrote:

I’ve made this point in other posts, but the federal government forced banks to make many of these bad loans under the Community Reinvestment Act.  Then, in order to address the lenders’ fears about the imprudency of these loans, in 1999 Fannie Mae and Freddie Mac started buying them under “relaxed” standards to meet the Clinton administration’s goals for homeownership for those who could not qualify for standard mortgages.

See articles here:
http://www.encyclopedia.com/doc/1G1-57102582.html

The Bush administration had been trying since 2003 to get control of the out of control lending situation, but its efforts to enact new regulatory laws were blocked by the Democrats in Congress, led by Dodds and Frank.

February 1, 1:03 pm | [comment link]
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