August 9, 2010 / 6:03 PM / 9 years ago

Freddie Mac presses lenders lagging on repurchases

NEW YORK, Aug 9 (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.

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.

“We have begun to require certain seller/servicers to commit to plans for completing repurchases, with financial consequences or with stated remedies for non-compliance, 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 responded by boosting reserves and pulling back on credit for homebuyers, according to analysts.

Potential liabilities in repurchases have also been cited as an issue complicating Ally Financial’s sale of Residential Capital, a major U.S. lender.

Some loan seller/servicers failed to fully complete repurchase obligations due to a lack of financial capacity, Freddie Mac said.

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 Corp (BAC.N) 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

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