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It's no secret that the government-sponsored enterprises have been aggressively pushing dicey mortgages back to lenders. But data released Wednesday by Freddie Mac shows lenders are doing plenty of pushing back.
The GSE said some big-bank customers aren't honoring its loan repurchase requests "in a timely manner." A total of $4 billion in loan repurchase requests were unfulfilled as of Dec. 31, up by about a third from a year earlier. Nearly 30% of those requests had been outstanding for more than three months. And though some servicers had financial difficulties, three of the GSE's "larger, higher credit quality" servicers had more than 30% of their repurchase obligations outstanding that long.
"It's more like the movie 'Network,' where the star says, 'I'm mad as hell, and I'm not going to take it anymore,' " said Larry Platt, a partner in the financial services group at K&L Gates LLP in Washington. "The dollars are too much."
Freddie disclosed the figures in its annual filing with the Securities and Exchange Commission.
Freddie and Fannie Mae have been stepping up their repurchase requests over the past year and a half, as they try to manage the mountain of delinquencies on their books.
Such requests have been a thorn in mortgage bankers' side, and one that isn't easily removed, since lenders depend on the GSEs to buy loans. (Freddie said it bought one out of every four home loans originated in 2009.)
On the other hand, the GSEs are equally dependent on a number of lenders.
Freddie said 74% of the single-family loans that it bought last year came from just 10 companies. Wells Fargo & Co. accounted for 27% of the single-family loans Freddie purchased, while Bank of America Corp. accounted for 11%.
The GSE said in the filing that it is walking a fine line; enforcing its rights to make lenders buy back these loans could "negatively impact our relationships with such customers and ability to retain market share." (Freddie would not discuss the issue beyond what was in the filing.)
Lenders have complained that the GSEs are being too picky, pushing back loans for minor oversights.
"I think why you see resistance is there is this overcorrection going on, in terms of everything being pushed back," said Paul Anastos, president of Mortgage Master Inc., a Walpole, Mass., lender. (He said he sells loans to Freddie, which has never asked him to buy any back.)
"If they focused in on really what was the problem, they'd gain more traction. I think they'd have more cooperation."
Freddie has tussled in the past with lenders that resisted its repurchase requests.
In fall 2008 JPMorgan Chase & Co., which had purchased the banking operations of Washington Mutual, was fighting Freddie's requests that it buy back troubled loans that the failed thrift had sold to the GSE. Freddie, in turn, threatened to forbid JPMorgan Chase from servicing a portfolio of Wamu loans. Freddie announced in January 2009 that it had settled the dispute with the New York banking company.
Servicers might delay the repurchase of loans, but they won't let the situation get to a point where it ruins their relationship with the GSEs, said Joe Garrett, a partner at the consulting firm Garrett, Watts & Co.
"I don't believe they can afford not to do business with Fannie Mae or Freddie Mac," he said. "They need them. It would shock me if any of them resist repurchases to the point where they impair their relationship."
Observers said it's likely that both sides will be forced into making compromises, so long as loan losses and delinquencies remain high, which is the forecast for the foreseeable future.
"It's a really tough issue on both sides, because Fannie and Freddie have a right to buy loans that are what [lenders] purport them to be, and the notion that they are telling sellers, 'Folks, these aren't just what you advertised' is not unreasonable," Platt said. "The sellers are saying, 'It's an imperfect business. It's not always possible to cross every "t" and dot every "i." There's only so much we can absorb.' "
Freddie also reported Wednesday that its net loss, after paying preferred dividends on the Treasury Department's investment, narrowed to $7.8 billion last quarter from $23.9 billion a year earlier.
Because Freddie ended the year with positive net worth of $4.4 billion, it did not require additional funding from the Treasury. However, the GSE said it expects it will need to draw on additional funding from the government in the future.
Nonperformers to total single-family assets jumped to 5.49% from 2.59% in the fourth quarter of 2008 and from 4.82% in the third quarter. The share of single-family loans 90 days or more past due stood at 3.98%.
"It would be nice to say the worst is behind Freddie, but that conclusion remains at least two quarters away" Jim Vogel, an interest rate strategist at FTN Financial Capital Markets, wrote in a note to clients.
Separately, Fannie Mae said Wednesday in a regulatory filing that it expects to recognize a loss of $5 billion in the fourth quarter related to its investment in low-income housing tax credits. As a result, Fannie said its net worth will be reduced by an equal amount, leading it to increase its funding request to the Treasury.