Fannie Mae and Freddie Mac are stepping up efforts to sell back faulty mortgages they purchased from lenders during the housing bubble as they look to reduce the cost of a taxpayer bailout, according to bankers, investors and analysts.
The goal is to ease the $190 billion cost of bailouts for the two taxpayer-backed firms. Investors’ concern about the potential damage helped push Bank of America’s stock down 40% since the end of 2010 and discouraged some banks from writing new mortgages, regulators have said.
Total mortgage-related costs for the 15 biggest U.S. banks and Ally rose by $7.6 billion to at least $84.1 billion since 2007, according to data compiled by Bloomberg.
Bank of America, Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. set aside nearly $3 billion to buy back bad home loans in the first half of 2012, according to Bloomberg. Regional lenders such as SunTrust Banks disclosed at least $1.3 billion of added costs, exceeding their total for all of 2011.
Regulators seized Fannie Mae and Freddie Mac - known as government-sponsored enterprises, or GSEs - four years ago after their purchases of risky loans pushed them to the brink of collapse.
Fannie Mae asked banks to buy back about $14 billion of loans for the first half of this year, compared with $12.3 billion in the same period last year. Banks including Wells Fargo and PNC have blamed changes in behavior at the GSEs for an increase in pending claims.
Fannie Mae and Bank of America are in a dispute over how much the Charlotte, N.C.-based lender will be forced to take back. The lender refused to buy back most loans and stopped selling new mortgages to Fannie Mae in February. Unresolved demands for buybacks swelled to $9.42 billion as of June 30, compared with $5.45 billion at the end of 2011, according to Bloomberg. Bank of America added $1.5 billion of mortgage-related costs in the first half, including repurchase provisions, bringing total costs since 2007 to about $43 billion.
Bank of America, whose Countrywide unit was the biggest mortgage lender before the housing bust, added $677 million to reserves for buying back bad loans in the first half of the year while San Francisco-based Wells Fargo, the current market leader, set aside $1.1 billion.
Bloomberg’s tally was assembled from regulatory filings, company statements and financial presentations from U.S. lenders since the start of 2007. The data cover provisions and expenses tied to repurchases, foreclosure errors and abuses, payments to reimburse investors for lost value on faulty mortgages, legal settlements and litigation expenses.
It also includes some writedowns of assets, such as mortgage servicing rights, when the company specifically attributed the loss in value to problems in mortgage underwriting or foreclosures and the costs of remedies. The totals may increase as more detailed breakdowns become available. Actual losses may be lower if banks recover some of the costs by reselling the loans or seizing the property.
Last month, Fannie Mae and Freddie Mac reported declines in serious delinquencies.