Friday, May 21, 2010

Fannie Mae Loan Buyback Requests Up More Than 60% Year Over Year

by Tim Rood The Voice of Housing May 11, 2010

While many expected the disturbingly high number of GSE directed repurchase demands to mortgage lenders on nonperforming loans to crescendo in 2009 – 2010 is looking to be an even more onerous year for mortgage lenders that sold loans to the GSEs. Nonbank financial institutions in particular, could be at significant financial risk by the contingent liabilities associated with the representations and warranties made to the GSEs for the quality, eligibility, and integrity of loans they originated and sold; and, which are now seriously delinquent or in default.

Excerpts from Fannie Mae’s 2010 Q1 Form 10-Q:

Pursuing Contractual Remedies
. We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage.

During the first quarter of 2010, lenders repurchased approximately $1.8 billion in loans from us, measured by unpaid principal balance, pursuant to their contractual obligations. We are also pursuing contractual remedies from providers of credit enhancement on our loans, including mortgage insurers. We received proceeds under our mortgage insurance policies for single-family loans of $1.5 billion for the three months ended March 31, 2010.

Our mortgage servicers are obligated to repurchase loans or foreclosed properties, or reimburse us for losses if the foreclosed property has been sold, if it is determined that the mortgage loan did not meet our underwriting or eligibility requirements or if mortgage insurers rescind coverage.

In 2009 and during the first quarter of 2010, the number of repurchase and reimbursement requests remained high. Pursuant to our servicers’ contractual obligations, during the first quarter of 2010, the aggregate unpaid principal balance of loans repurchased by our servicers was approximately $1.8 billion compared with $1.1 billion during the first quarter of 2009.

If a significant servicer counterparty, or a number of servicer counterparties, fails to fulfill its repurchase and reimbursement obligations to us, it could result in a substantial increase in our credit losses and have a material adverse effect on our results of operations and financial condition. We expect the amount of our outstanding repurchase and reimbursement requests to remain high throughout 2010.

Fannie Mae Loan Buyback Requests Up More Than 60% Year Over Year

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