Fannie, Freddie may ask banks to eat soured mortgages

Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21bn of home loans this year as part of a crackdown on faulty mortgages. That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says US banks could suffer losses of $7bn this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the US government, stuck the four biggest US banks with losses of about $5bn on buybacks in 2009, according to company filings made in the past two weeks. The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202bn of losses since 2007, and banks may have to go along, since the two US- owned firms now buy at least 70% of new mortgages. “If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve. “It doesn’t matter how much you hate Fannie and Freddie.”

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