Fannie, Freddie Got $20.9 Billion From Loan Buybacks, FCIC Says

Fannie Mae and Freddie Mac have received about two-thirds of the $34.8 billion they’ve demanded from lenders for mortgages that failed to meet quality standards, the Financial Crisis Inquiry Commission reported.

The government-sponsored enterprises got banks to buy back 167,000 home loans totaling $20.9 billion from 2007 through August of last year, the FCIC said in its final report to Congress and President Barack Obama, which was released today.

The two companies have operated under U.S. conservatorship since they were seized by the federal government in 2008 and have tried to force banks to take back poorly written loans as they look to stem losses. The information compiled by the FCIC provides the fullest picture to date of the buyback demands, which banks have been resisting.

“The amount put back is notable in that it represents 21 percent of $163 billion in credit-related expenses recorded by the GSEs since the beginning of 2008 through September 2010,” the commission said in its report, referring to the $34.8 billion sought by Washington-based Fannie Mae and Freddie Mac of McLean, Virginia.

The FCIC, the congressionally appointed panel assigned to find the causes of the 2008 financial crisis, released the information on its website as part of a report that put equal blame on regulators and financial firms. The findings weren’t endorsed by panel’s Republican minority, whose members issued two dissents faulting a mortgage-fueled credit bubble and the role of the two GSEs in promoting U.S housing policy.

Confidentiality

Lawyers for the companies had urged the commission not to disclose the information. Brad German, a spokesman for Freddie Mac, declined to comment, citing confidentiality of the documents. Amy Bonitatibus, Fannie Mae’s spokesman, also declined to comment.

Fannie Mae and Freddie Mac, which own or guarantee more than half of U.S. mortgages, were placed under government conservatorship in September 2008 after loan losses pushed them to the brink of insolvency. They have been sustained by more than $150 billion in Treasury Department aid.

Loan-purchase contracts give Fannie Mae and Freddie Mac the right to require that banks buy back loans that fail to meet their underwriting standards. The two companies, which routinely review loans to determine whether they measure up, have pushed banks to take back faulty mortgages written amid investor demand for securitized debt before the credit crisis.

Freddie Mac found that even mortgages that were being paid on time often failed to meet standards, according to the FCIC report. Ineligible performing loans more than doubled from 10 percent of mortgages in 2005 to 23 percent in 2008.

20 Percent

In the same period, 17 percent of delinquent loans and 27 percent of foreclosed loans didn’t meet company standards. Freddie Mac put back 20 percent of those loans, the report said.

Freddie Mac lawyer Jordan Hershman of Bingham McCutchen LLP disclosed the information in a Sept. 21 memo to the FCIC.

Fannie Mae put back nearly 38 percent of loans in 2008, up from 36 percent in 2007 and 31 percent in 2006, lawyer Jeffrey Kilduff of O’Melveny & Myers LLP wrote in a Sept. 21 memo.

Kilduff said the information “did not previously exist in this form” and its accuracy couldn’t “absolutely” be ensured.

Fannie Mae from 2007 to 2010 demanded repurchases worth $6.9 billion from Bank of America Corp., $2.3 billion from Wells Fargo & Co., $2.2 billion from JPMorgan Chase & Co., $898 million to SunTrust Banks Inc. and $838 million from Ally Financial Inc.

Freddie Mac in 2009 and last year sought buybacks worth $1.9 billion from Bank of America’s Countrywide Financial Corp., $1.2 billion from Wells Fargo, $1.1 billion from JPMorgan, $476 million from Bank of America and $453 million from Ally.

In January, Bank of America settled GSE putback claims for more than $2.5 billion.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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