The four largest banks in the country – Bank of America, JPMorgan Chase, Wells Fargo and Citibank – may be forced to buy back nearly half of the bad loans that the sold to Fannie Mae and Freddie Mac to help relieve stress on the GSEs[1]. It appears that repurchase requests will center around loans that were made without adequate documentation, also known as reduced documentation loans or Alt-A loans, and loans that were underwritten to sub-par standards. However, if this does not relieve enough of the burden on Fannie and Freddie, foreclosure rates on loans could come into play as they compel additional buybacks.
While at first this might seem only fair – after all, the banks did make the crummy loans in the first place – it could create a serious problem by making many of those loans essentially “double-whammies.” Fannie and Freddie are receiving literally billions of dollars in rescue funds, and then to force banks to buy back loans for which the GSEs have theoretically been compensated simply creates a two bad situations for every one bad loan. In a worst-case scenario, the cost to the lenders alone, leaving aside for a moment the GSEs and the taxpayers, could be as much as $42 billion.
Do you think that this bulk buyback is a reasonable demand for Fannie and Freddie to make?
Thank you for reading the Bryan Ellis Real Estate Letter! Your comments and questions are welcomed below.
[1]http://www.dsnews.com/articles/four-biggest-banks-could-be-hit-with-180b-in-gse-loan-buybacks-fitch-2010-08-19
Fannie and Freddie are essentially government operations. They are staffed by people who are interested in maintaining government control and preserving their own positions of whatever power they may hold, real or imagined. Fannie and Freddie are both history. They have been so badly managed that they are, in reality, defunct. Bad Government policies have led them to this point, and in no way, should they be compensated any further. Two Government bailouts couldn’t do it, why would anyone expect forced buybacks to make any difference. Let them both fail.
NO way. The banks made the loans according to the investor guidelines and the investor bought the loans knowing that they were alt-A. It’s Fannie and Freddie’s problem. The banks wouldn’t have made the loans if they didn’t know that the loans could be wholesaled to Fannie and Freddie.
You can’t come back to someone later and say, well you followed the rules, but now that the game has changed, we want to penalize you.
Let’s see. The lenders make thousands of no-doc or even fraudulently documented loans (just put down how much you make) and the sell them off as AAA rated thanks to their friends at AIG…then they get a big bailout AND get to go directly to the FED’s discount window to borrow money at nearly 0% …not to make loans but to make investments and bigger profits….and I’m supposed to feel bad that Fannie/Freddie want them to pay for their bad actions… which border on criminal. Are you kidding me?
The more money they pay to Fannie/Freddie, the less the taxpayer has to pay to bail them out and hell, there getting their money nearly free at the Fed window. Sticking up for these jokers is almost like a case of collective Stockholm syndrome. We want to stand up and defend the poor bankers? Get a grip, sheeple.
The government wants to own as many houses as possible to “give” them to whomever they want. So they can buy their votes in the upcoming elections. they can give them to Section 8 people, on the boarder politicians, etc.
And who will ultimately pay the money that BOA, Wells Fargo, etc. will have to pay? Us, investors and home buyers, the people who buy future real estate. The price will increase to a ridiculous value – 100% of market value, 110% – no short sale discounts, no REO discounts. If you want the house, pay the price.
The government is pretty much showing how much they hate capitalism. This is the next step.
That is a tough call. The GSE’s allowed the light-doc programs and did purchase the mortgages. However, their purchase agreements are always going to allow for buy-backs if insufficient underwriting results is losses. In some of those cases, especially with lenders like Countrywide (now our pompous friends at Bank of America), I can tell you that buy-backs would be warranted. Countrywide allowed branch managers compensated on commission to make underwriting decisions. If they force buy-backs for poor underwriting it will lessen the burden of taxpayers in the upcoming multiple rounds of “we need more bailout money” discussions. This is similiar to pointing fingers at mortgage brokers for lite-doc loan programs created by Wall Street (Lehman/ALS, etc,), and allowed and purchased by FNMA/Freddie. The GSE’s endorsed the products and purchased them, but in some cases underwriting by the lender was so ridiculous they do deserve to have the loan put back to them.
No big deal the banks should buy back the loans and
move forward if any fallout happens I will short their
stock with put options thanks for the heads up
Flawed analysis:
- GSEs have not been “compensated” for the losses that these buybacks could represent. Their bailout has covered losses already taken on loans that were not pushed back.
- Banks have taken billions in subsidies and bailouts as well and then parking those monies along with (mostly fee) profit in govt bonds. Essentially, getting money at 0% from the Fed and then re-loaning the money back to the govt for 1-3%; taking the spread. This is the preferred strategy to rebuild the balance sheet. Obviously with the size of the losses, this will take a long time. Many of the major banks are “zombies” – essentially insolvent and walking dead. If they actually had to “mark to market” rather than mark to model, they have a good chance of going bust. This is why the banks are not lending to small business, etc. The strategy is to fee to death the customer base and ride a “risk free” interest arbitrage (carry trade). These institutions are not interested in getting “America moving”, they are in self-preservation mode. Support your local lender!!
- The GSEs are not necessarily “changing the game” after the counterparties “followed the rules”. These pushbacks have been audited and found to have glaring misrepresentations. They were taken in on good faith, shit has hit the fan, and THAT prompted a 2nd (or 4th) look. Lo and behold… messes were uncovered that justify a pushback. True, if things were going swimmingly, no one would be the wiser and there would be no need for more careful audits.
Disclaimer: this is not a defense of the GSEs. I agree they were (are) arrogant as hell, pulled a lot of crap/incompetence, and richly rewarded too many worthless management cronies. Just like the big banks. They’re all a bunch of crooks and have done (and continue to do) great harm to this nation’s economy. Just want there to me more depth and accuracy when discussing these complex issues.
Everyone seems to be forgetting that all these loans were actively promoted by the Fed. Greenspan himself was on TV promoting HE loans and other types of low interest short term variable loans, saying he was using them himself.
The Fed will simply print more fiat money to make this problem disappear in the present.
Absolutely. I agree with Freddie and Fannie. It is about time for the banks to be penalized for their stupidity.
The only thing I have to say is any support of any kind for Fannie and Feddie is the stupidist, most communist thing I have read lately. For those that think this is a good idea put out your business dealings to other can see what you are really about. Show yourselves as the liberal stooge’ s of this administration you really are!
I am willing to put out my business dealings, Bryan post his every time he writes something, put up or shut up about the banks and others attempting to make some money to employee your sorry asses. Not one of you libs can show any kind of free enterprise involvement because without the money the government is stealing from all of us and our children, not one of you would have a nickel in your pockets.
Ever hear of Contract Law, learn what it is!! Learn why the constant violation of contract law is what is putting our country into a depression. Learn why Obama is nothing more than a Marxist pretending to like you and wants to help you. The only help he is offering is to help my lose even more of my money so he and his family can go on vacations at taxpayers expense all over the world. Get out of my pocket, get back to work and abide by contract law!
Again I say: Too Little, Too Late. The damage has already been done. People are losing their jobs damn near as fast as they are losing their homes. And all because a few greedy idiots decided to throw a “Let’s Get Rich” party (Scheme) a few years ago. Stop using banks. Move your cash and retirement accounts to Credit Unions. Or buy with seller financing. Put the banks and the Government, in it’s present form, out of business.
Great idea Sludin, but have you heard how government is now controlling owning financing? The Fed’s and your state. Check out S-A-F-E act in your state. It might hit you hard!
Just shows to go ya. Gov’t regs required banks to make loans, now
gov’t want banks to bail them out. Gov’t created the problem, now they
are going to solve the problem. Good Luck. Gov’t should be reduced
to lowest possible common denominator and keep their damn nose
out of business. Never mind, Obama will figure out a way to award
it to the unions anyway.
Havew been studying the foreclosure situation intensely now for 3 years. Lot’s of blame in every direction. We have Laws already on the books. I say we tackle (and in the process create an entire industry (jobs!) centered around upholding the Laws that were on the Books at the time each of these mortgage loans was in place and let the chips fall as they may. But I DO mean uphold the Law! So many of these loans were predatory, lacked ANY proper due diligence, were created entirely with erroneous documentation and are now being brought into the courts using even more forged and/or falsified information, that a lot of these homeowners are actually entitled to walk with a free home AND lot’s of cash for the crimes committed. But we’re a Nation of Laws and until the Govt. and the Legal Industry starts supporting Lawful behavior and punishing unlawful behavior we’re never gonna see the end of it and get back to good times.
that’s my 2 cents worth.
I agree with Ken Bush copletelly. And Chris, you are real bad dog, just barking to defend your “masters” and their “properties”, but this is how much you know and haw much you are able to think without harming yourself. You are brainwashed, but not that stupied to not understend, that the rabish you talking against the other’s efforts to do something and repair the damages, which you personally, and your masters did to this nation, will make you fill good if the masters come back in power.