Crisis Leftovers: Fannie, Freddie Force More Mortgage Buybacks
Fannie Mae and Freddie Mac are forcing the nation’s biggest lenders to buy back more of the badly-written mortgages that served as a trigger for the financial crisis, and a dash for cash has ensued.
That widely-distributed estimate comes from Oppenheimer & Co. analyst Chris Kotowski, who projects U.S. banks could be hit with losses of $7 billion this year when those loans are taken back.
When banks are forced to buy back bad loans, they typically take a loss. This means higher reserves for credit losses and reduced revenues.
And it means that the financial crisis is still gnawing at their books, despite the countless bailout programs set up by the U.S. Treasury, mostly replenished by the banks’ repayments.
The cycle of mortgage buybacks is being accelerated as Fannie and Freddie, now financing more than 70 percent of mortgages, are making the lenders more accountable for their past underwriting mistakes.
Fannie and Freddie have already sought nearly $127 billion in Treasury bailouts, and since a controversial Christmas Eve announcement by the Treasury, now hold open-ended credit lines to cover quarterly shortfalls.
Fannie and Freddie forced the four largest U.S. banks with buybacks in 2009 amounting to about $5 billion in losses, according to recent company filings.