Mortgage Lenders Say `Enough Is Enough' as Buybacks Curb Loans

Home lenders are making it tougher to get loans as investors step up demands for refunds on defective mortgages, damaging the housing market, executives said today at an industry conference.

Already beset by billions of dollars in forced buybacks, originators have imposed standards on new loans that are stricter than those set by mortgage buyers and insurers, according to Todd Chamberlain, an executive vice president who oversees mortgage lending at Birmingham, Alabama-based Regions Financial Corp.

“This industry has to stand up and say, ‘Enough is enough,’ " Ron J. McCord, chairman of Oklahoma City-based First Mortgage Co., said during a panel discussion with lender executives at the Mortgage Bankers Association’s annual conference in Atlanta, drawing applause from the audience. “We’re trying to be out here lending to help this recovery.”

Fannie Mae, Freddie Mac and bond insurers such as MBIA Inc. are pressing lenders including Bank of America Corp. to honor promises to buy back mortgages if they’re later found to be based on inaccurate data. Known as representations and warranties, the promises cover defects such as inflated appraisals or inaccurate data about a borrower’s job or income. Bank of America said last week it will resist paying claims.

Call for Unity

The industry needs to be “more united” in dealing with the demands, said William C. Emerson, Chief Executive Officer of Detroit-based Quicken Loans Inc., ranked as the 10th-largest lender in the first half of this year by newsletter Inside Mortgage Finance. Bankers have attributed mortgage defaults to the poor economy rather than defects in the loans.

“We all know we signed up for reps and warranties, but I don’t know if we thought we signed up to be an insurance company,” he said, speaking on the panel with Chamberlain and McCord.

Bank of America, the biggest U.S. lender, will “defend our shareholders” by disputing unjustified claims, CEO Brian T. Moynihan said in an interview last week. The Charlotte, North Carolina-based bank said it faces about $12.9 billion in pending claims.

Most of the disputed loans “don’t have the defects that people allege,” Moynihan said in the Oct. 19 interview, and Chief Financial Officer Charles H. Noski told analysts any repurchases will be negotiated “on a loan-by-loan basis.” For claimants such as Assured Guaranty Ltd., Bank of America’s one- at-a-time process is “like Chinese water torture,” said Dominic Frederico, the bond insurer’s chief executive officer, during an August conference call.

More Requests

Dan Arrigoni, CEO of Minneapolis-based U.S. Bancorp’s mortgage unit, the sixth-largest U.S. home lender, said his firm is seeing its most repurchase requests ever, though the amount is “still manageable.” Those are often coming from government- supported Fannie Mae or Freddie Mac, typically referred to as “agencies.”

“Our good friends at the agencies have hired a boat-load of people to go through everything with a fine-tooth comb, and they’ve done a good job,” he said. At the same time, “we’ve been successful in having them rethink a few.”

Fannie Mae and Freddie Mac, the largest mortgage-finance companies, may be owed as much as $42 billion just on loans they bought directly from lenders, according to Fitch Ratings. Investors in private mortgage bonds may collect as much as $179.2 billion, Christopher Gamaitoni, vice president of research at Compass Point Research & Trading LLC in Washington, said in an August report.

Joint Action

A group of investors in mortgage securities including BlackRock Inc. and the Federal Reserve Bank of New York signaled in a letter last week to Bank of America and Bank of New York Mellon Corp., a bond trustee, that bondholders may press for more refunds.

Sales of U.S. existing homes rose in September by 10 percent, the most on record, a sign that cheaper borrowing costs may be helping to stabilize the housing industry. The U.S. is glutted with a 10.7-month supply of unsold previously owned homes, the National Association of Realtors said today.

First Mortgage’s McCord said his private company, which makes about $1 billion of mortgages a year, is fending off as much as 70 percent of repurchase requests by proving it lived up to its contracts. Still, the demands themselves add to lenders’ expenses and stress, he said.

“My wife has said on numerous occasions I look like I’m going to have a heart attack over this,” McCord said.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Rick Green at rgreen18@bloomberg.net

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