4 out 5 primates agree: the GSEs should pursue mortgage repurchases.
Last week we discussed government mortgage giants Fannie Mae and Freddie Mac’s attempts to force loan originators to buyback some of the bad loans on their books. Today there is a little more information on these efforts, from an article Housingwire.com’s Christine Ricciardi.
According to the article, several prominent members of Congress wrote letters to President Obama and the Federal Housing Finance Agency (FHFA) to take action to recover money from lenders that fraudulently dumped bad mortgages on Fannie and Freddie.
Congressman Barney Frank, Chairman of the House Financial Services Committee was quoted in the article as saying:
“These losses largely result from business decisions during the bubble year that were honest but flawed. However, some of these losses result from deception. Private companies sold Fannie and Freddie loans or securities based on fraudulent doceuments… they should be fought with every tool at the companies’ and the agency’s disposal.”
Fannie Mae and Freddie Mac were seized by the government in 2008 in order to avoid financial collapse. Since this time the Obama Administration has pledged an unlimited amount of capital to backstop the agencies. Already the GSEs have required $150 billion, with the Congressional Budgetary Office estimating that the bailout could cost $400 billion, while others estimate the losses could run much, much higher.
The FHFA may be able to limit taxpayer losses through exercising buyback clauses in mortgage purchase agreements. Last week it was estimated the GSEs could attempt to have $180 billion worth of mortgages bought back. The FHFA issued subpoenas in July to determine if some of the bad mortgages are the responsibility of other entities.
I think any effort that will potentially save the taxpayers from having to bear the full burden of these poorly underwritten mortgages is a good one. What do you think? Let me know in the comments section below.
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