Fannie and Freddie seek to Hold Banks Accoutable for Bad Mortgages

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.


Posted in * Culture-Watch, * Economics, Politics, Economy, Housing/Real Estate Market, Law & Legal Issues, 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

6 comments on “Fannie and Freddie seek to Hold Banks Accoutable for Bad Mortgages

  1. AnglicanFirst says:

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

  2. Br. Michael says:

    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.

  3. Chris says:

    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.

  4. Bill Cavanaugh says:

    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.

  5. Jim the Puritan says:

    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:

    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.

  6. keira says:

    We know very well that economic crisis is striking everyone of us. Despite the state of the economy (or at least the picture we’re given of it) there are still mortgages that people are getting approved for and homes they are buying with them. The key to the finance industry, especially real estate, recovering is lending home loans again (and they do way more business than the payday loans industry, that’s for sure) and people buying homes with them. They only difference is now you’ll need a bit more than a signature in order to get approved, but it’s still possible of course.