Mayopoulos Says Buyback Demands Mostly Resolved After BofA Deal

Fannie Mae is about three quarters of the way through its effort to force banks to buy back failed loans originated at the housing bubble’s peak, its Chief Executive Officer Timothy Mayopoulos said today.

The company’s $11.7 billion settlement with Bank of America, announced yesterday, takes care of a significant portion of its outstanding buyback requests, Mayopoulos said at a Bloomberg Government breakfast in Washington.

“With the resolution of Bank of America, I think you’ll see our total repurchase demand volume down substantially,” Mayopoulos said. “You’ll see that many of those resources we were devoting to legacy issues over the last few years can now be put to other uses.”

Washington-based Fannie Mae has flagged underwriting flaws in about 3 percent of loans originated from 2005 to 2008 that it purchased and packaged into bonds on which it guaranteed interest and principal. In addition to Bank of America, the company has asked JP Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and others to buy back defaulted mortgages.

The government-owned company, which buys mortgages from lenders to provide market liquidity, can require that they be bought back of it finds the loans didn’t meet underwriting standards.

Fannie Mae had outstanding repurchase requests totaling $16.2 billion in the third quarter of 2012, according to regulatory filings. Of that, $10.8 billion involved requests pending at Bank of America.

Bank of America will make a $3.6 billion cash payment, spend $6.75 billion to buy back residential loans sold to Fannie Mae, and pay $1.3 billion in fees for taking too long to assist or foreclose on overdue borrowers, in the deal announced yesterday.

Taxpayer Subsidies

Fannie Mae, based in Washington, and its fellow government-sponsored enterprise, McLean, Virginia-based Freddie Mac, have received $190 billion in aid from taxpayers since they were taken into U.S. conservatorship in 2008 when investments in risky loans pushed them to the brink of insolvency. The companies have paid a combined $50 billion in dividends back to the U.S. Treasury.

The company’s finances have now turned around, Mayopoulos said. Fannie Mae reported $9.7 billion in net income in the first three quarters of 2012, more than it has ever reported in for a full year, Mayopoulos said.

Republicans and Democrats in Congress and President Barack Obama have called for Fannie Mae and Freddie Mac to be wound down and replaced. The company’s recent performance should cause lawmakers to consider the earnings potential for taxpayers, Mayopoulos said.

“The improvement in the company’s financial condition and our ability to return value to taxpayers I’m hopeful will cause people to sit back and reflect on some of the positives that the GSEs bring forward,” he said.

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