Government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae may exercise the right to force the big four banks, JP Morgan (JPM), Citigroup (C), Bank of America (BAC), and Wells Fargo (WF), 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 said it is undertaking a review of Fannie and Freddie to assess whether the increased reserves are just a part of the flood of troubled mortgages or whether they are expanding their interpretations of what constitutes an eligible mortgage under existing representation and warranty provisions. “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. Under a mild loss scenario, where the banks buyback 25% of delinquent loans and recover 60% of the money, Fitch expects cumulative losses around $17bn. Under a moderate loss scenario, in which the banks buyback 35% of delinquent loans and recover 55% of the money, Fitch expects losses around $27bn. Under a more adverse scenario, if banks repurchase 50% of troubled mortgages and recover only half of the original investment, Fitch expects losses of about $42bn. These figures do not include the banks’ ability to cure deficiencies in loans which could lessen loss. Fitch believes the moderate scenario is the most likely and said it will continue to monitor the on-going developments between banks and the GSEs related to mortgage loan repurchases. Write to Christine Ricciardi.