Wells Fargo CFO: Repurchase risk only applies to half its private MBS
The CFO of Wells Fargo (WFC) downplayed the extent of repurchase risk his bank faces in a presentation yesterday at the BancAnalysts Association of Boston. The repurchase risk that banks face could reach $43 billion, according to a Standard & Poor's estimation Thursday. Wells Fargo repurchased a comparatively low $69 million in the third quarter, CFO Howard Atkins said at the presentation. Wells Fargo is the largest mortgage originator in the United States with nearly one quarter of market share, with $427 billion in 2009. One in three households in the nation have some form of business with Wells Fargo. In speaking about the private-label mortgage securitization universe at the banks, Atkins said, "(our) repurchase risk is mitigated because approximately half of the securitizations do not contain typical reps and warranties regarding borrower or other third-party misrepresentations related to the loan, general compliance with underwriting guidelines, or property valuations." JPMorgan, the third largest mortgage originator with 8.6% market share ($155 billion in 2009), estimates that the cost to sellers for repurchases could be more like $40 billion to $80 billion for nonagency securities. Securitization investors in the non-GSE space may allege that they purchased certain mortgage-backed securities with underestimated risks and request a repurchase by the issuer on the bonds. Such an actionable request, some argue, is allowable. Atkins added that non-agency repurchase demands have declined for two consecutive quarters. In the GSE space, losses are concentrated between 2006 and 2007 vintages. Mortgages originated in these two years show an alarming delinquency rate, according to Standard & Poor's. Repurchase demands from Freddie Mac and Fannie Mae are also declining, Atkins said (see chart below). Write to Jacob Gaffney.