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Lenders Bite the Bullet, Buy $3.1bn of Mortgages Back from GSEs

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The government-sponsored enterprises (GSEs) Fannie Mae (FNM) and Freddie Mac (FRE) forced lenders to repurchase $3.1bn of mortgages out of their securities and off their books in Q110, up 64% from nearly $1.9bn one year earlier. During Q110, lenders repurchased approximately $1.8bn in loans from Fannie, measured by unpaid principal balance, compared with $1.1bn in the year-ago quarter. The repurchases arrived as Fannie posted a Q110 net loss of $11.5bn. According to a regulatory filing with the Securities and Exchange Commission (SEC), the company expects the amount of outstanding repurchase and reimbursement requests to remain high through 2010. "We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage," Fannie said in the regulatory filing (down here). Brother GSE Freddie saw $1.3bn of loans repurchased during Q110, up from $789m, according to an SEC filing (download here). In the same quarter, Freddie lost a net $6.7bn. Freddie noted that some lenders fail to repurchase due to a lack of financial capacity. At the end of the quarter, Freddie had outstanding repurchase requests on loans with unpaid principal balance of $4.8bn, up from $3.8bn in the previous quarter. About 34% of Freddie's outstanding repurchase requests  were outstanding more than 90 days. Three of Freddie's larger seller/servicers had more than 30% of their repurchase requests outstanding for more than 90 days at the end of the quarter. "Enforcing repurchase obligations with lender customers who have the financial capacity to perform those obligations could also negatively impact our relationships with such customers and ability to retain market share," Freddie said. At fellow mortgage finance giant Ginnie Mae, lenders bought back $15.5bn of loans in Q110, up from $4.9bn in the year-ago quarter. Write to Diana Golobay. Disclosure: the author holds no relevent investment positions.

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