Fannie and Freddie Resume Foreclosure Sales, Not Accepting Cured Mortgage Repurchases
Two pieces of somewhat tangentially related news about everyone’s favorite mortgage giants, Fannie Mae and Freddie Mac:
First, Freddie and Freddie are telling real estate agents to resume the sale of foreclosed properties owned by the GSEs. Sales of foreclosed properties had been placed on hold for the previous two months as a result of the robo-signing foreclosure mess (if you are unfamiliar with the robo-signing/securitization disaster, this article by Mike Konczal is a good place to start). I am really not sure what has changed that prompted the GSEs to lift this moratorium. Ally Financial, JP Morgan Chase, and Bank of America all lifted foreclosure moratoriums they imposed while they took a closer look at their foreclosure processes. There is still an on-going joint investigation into lender behavior by all 50 state attorneys general. Lawsuits against major banks are mounting from both borrowers and investors in mortgage backed securities. Congressional hearings into the matter are ongoing, and everyday it appears that additional misdeeds are brought to light. On the one hand foreclosures (and foreclosure sales) must proceed if the housing market is to recover, on the other hand I believe we need to do our utmost to make sure the foreclosures are, you know, legal. The show must go on, I suppose.
The second piece of news is that Fannie Mae will no longer allow lenders to redeliver mortgages that were repurchased, even if defects in the mortgage were cured. Mortgage repurchase agreements are indemnification clauses that buyers of mortgage backed securities put in purchase contracts. These clauses stipulate that the buyer can force the seller to buyback the securities in the event that the underwriting (or other origination processes) for the underlying mortgages was defective and the mortgages defaulted. Many investors in mortgage backed securities are looking into the possibility of pursuing mortgage buybacks against major lenders for violating purchase agreements.
There’s not a whole lot else for me to say about these two items.