Government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae may exercise the right to force the big four banks, JP Morgan, Citigroup, Bank of America, and Wells Fargo, to repurchase up to $180bn delinquent mortgages, according to a report released by Fitch Ratings Wednesday.
As of June 30, the GSEs hold $354.5bn troubled mortgages, with 50% serviced by the big four banks. Fitch estimates the big four banks already received repurchase requests up to $19.1bn in the Q110 and Q210 — $10.7bn of which related to the GSEs.
Fannie and Freddie are “actively exercising their right to put back to the original lenders a considerable amount of the troubled mortgages in their portfolios,” write analysts Tom Abruzzo and Christopher Wolfe. The agencies have a right to require lenders to buyback delinquent mortgages, if it is determined the mortgage loan did not meet GSE investor underwriting or eligibility standards.
“Fitch is concerned that a more aggressive request for loan repurchases could potentially expose banks with large mortgage origination operations to future losses that have not been previously incorporated into Fitch’s existing exposures, and effectively into current ratings,” the report said.