The Mortgage Bankers Association is seeking relief for its members from Fannie Mae and Freddie Mac as the government-sponsored enterprises force lenders to buy back more soured debt, said John Courson, the trade group's president.
Though his members "certainly understand" their contracts require repurchases of defaulted loans when flaws such as faulty appraisals, inflated borrower incomes or missing documentation are discovered, the MBA has started to "aggressively" push the two GSEs and their regulator to ease up, he said.
Fannie and Freddie, propped up by unlimited taxpayer capital, should acknowledge lenders are unfairly absorbing too many losses, Courson said in an interview Wednesday. Unemployment that has reached a 27-year high is among the causes of defaults unrelated to loan quality.
"We're trying to see if we can't reach some type of a system that says there is a bright line out there, if this loan has been making payments and defaulted for a reason that is neither fraud nor related to the underwriting of the loan, it shouldn't be subject to a repurchase," he said.
Last quarter, the GSEs forced lenders to repurchase $3.1 billion of loans, up 63% from a year earlier, after defaults surged to their highest since the Great Depression, according to regulatory filings.
Bank of America Corp. and JPMorgan Chase & Co. are among the lenders that have set aside money to cover such demands. Freddie Mac in McLean, Va., had $4.8 billion of repurchase requests pending at March 31, up from $3.8 billion at Dec. 31. Washington-based Fannie Mae has made no similar disclosure.
Repurchases are "triggered when loans are out of compliance with our contractual requirements" or legal ones, or involve fraud, Brad German, a spokesman for Freddie Mac, said in a telephone interview.
"Because we are trying to be good stewards of taxpayers' dollars, it is very important that not one of those dollars goes to loans that should have not been sold to us."
Corinne Russell, a spokeswoman for the Federal Housing Finance Agency, the GSEs' regulator, declined to comment.
"We make repurchase requests when issues related to compliance with our underwriting and eligibility guidelines are detected after loans become delinquent or have gone through the foreclosure process," Janis Smith, a Fannie Mae spokeswoman, said in an e-mail.
Freddie Mac goes "through a process with our customers to give them an opportunity to correct deficiencies," German said.
The GSEs are being too tough on so-called put-backs after the housing finance agency's encouragement to be aggressive, Courson said. If a borrower made on-time payments for two or three years before defaulting, that is a sign that underwriting quality was not a problem and that a lender should not be forced to buy back the loan, he said.
Lenders are spending "huge" amounts defending against buyback requests and documenting how items flagged as errors actually are not, Courson said.
The mortgage bankers' trade group has held a workshop on dealing with the issue and plans another next month.