Freddie Mac pressures banks lagging on repurchases

NEW YORK (Reuters) - Freddie Mac, the second largest provider of funding for U.S. residential mortgages, said on Monday it is taking steps to speed the pace of faulty loan repurchases by lenders in an effort to more quickly cut losses it bills to taxpayers.

The government-controlled company said $5.6 billion in repurchase requests had piled up as of June 30, with some 24 percent of the obligations outstanding more than 120 days. Three of the larger lenders have had 24 percent of their repurchase demands outstanding for more than 120 days.

"We have begun to require certain seller/servicers to commit to plans for completing repurchases, with financial consequences or with stated remedies for noncompliance, as part of the annual renewals of our contracts with them," Freddie Mac said in its quarterly filing with the Securities and Exchange Commission.

A spokesman declined further comment.

In the last six months, Freddie Mac (FMCC.OB) has clawed back about $2.7 billion from the seller/servicers, which generally are lenders that sold loans into its mortgage-backed securities.

Loan repurchases have come into focus as Freddie Mac and other financial institutions seek to push losses onto lenders that made mortgages that fell short of stated terms as they were packaged into U.S.-supported mortgage bonds.

The push by Freddie Mac and rival Fannie Mae (FNMA.OB) is key for reducing taxpayer-shouldered losses as both companies have come to rely on the government for their survival.

Freddie Mac said on Monday it would need another $1.8 billion in capital from the U.S. Treasury, bringing the total since late 2008 to more than $64 billion.

The enforcement of "representations and warranties" on loans has become a thorny issue for banks, which have recoiled by pulling back on credit for homebuyers in addition to raising reserves, analysts said. Some lenders lack financial capacity for repurchases, and have fallen short, Freddie Mac said.

Illustrating the potential liability, repurchases have also been cited as an issue complicating Ally Financial's sale of Residential Capital, a major U.S. lender.

Bank of America Corp (BAC.N), the largest U.S. bank by assets, in its second quarter report on Friday said repurchase requests from the government-sponsored enterprises (GSEs) and private companies have increased by $3.5 billion over the last six months to $11.1 billion. Disputes with the buyers, which include insurers, have increased overall, it said.

Still, Bank of America has an "established history" of working with the GSEs on repurchases requests, including what constitutes a valid defect, it added in the filing. A Bank of America spokesman declined further comment.

More than half of the single-family mortgages in Freddie Mac-guaranteed securities as of June were serviced by Wells Fargo & Co (WFC.N), Bank of America and JPMorgan Chase & Co (JPM.N), according to the Freddie Mac filing.

The chief U.S. housing regulator is also trying to get information from "various entities" that could lead to greater repurchases of loans in the Wall Street-issued private mortgage bonds owned by Freddie Mac and Fannie Mae.

Meantime, investors representing $500 billion in private mortgage bonds announced last month they have cobbled together voting rights needed to initiate action with trustees, who are charged with enforcing representations and warranties.

The Federal Reserve Bank of New York last week said it is seeking ways to force banks to repurchase loans in securities held in its portfolios.

(Editing by Philip Barbara)