This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Feds May Sue Banks Over Buybacks

Stocks in this article: FNMA.OB FMCC.OB BAC WFC JPM C

Editor's note: Last month, TheStreet's Lauren Tara LaCapra reported the following story that foretold many of the issues that Bank of America is contending with today

NEW YORK ( TheStreet) -- Top regulators appear to have lost patience with banks' refusal to buy back billions of dollars' worth of mortgage loans and are threatening to escalate the matter further if a solution can't be reached.

During testimony before the House Financial Services Committee on Wednesday, Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said that while housing authorities have been pushing lenders hard, their resistance has been tough to get around.

"There are ongoing discussions between the enterprises and lenders to reach a workable solution," said DeMarco. "If these discussions do not yield reasonable outcomes soon, FHFA may look to its supervisory and conservatorship authorities provided under the statute to resolve the situation."

Asked by TheStreet what specific actions the FHFA plans to take against lenders, DeMarco provided the following statement via a spokeswoman: "Whatever FHFA would do depends on the facts and circumstances of each particular situation. It remains our hope that the servicers and Fannie Mae and Freddie Mac will work this out in normal order."

During his testimony, though, DeMarco pointed out that three Federal Home Loan Banks have filed court complaints in Pittsburgh, Seattle and San Francisco, alleging "fraud, misrepresentation, and violations of state and federal securities laws" related to certain private-label mortgage-backed securities purchases. The FHLBs are demanding that loan originators buy back $20 billion worth of related securities.

It's possible that top lenders that are refusing to buy back mortgages from Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) could face legal action as well.

Lenders and investors sell mortgage-backed securities to Fannie and Freddie under contracts that include "representations and warranties" about underwriting terms. If any of those terms are breached, Fannie and Freddie, which are overseen by the FHFA, can request that lenders repurchase the debt.

As taxpayer losses related to Fannie and Freddie continue to climb, federal housing authorities have been scrutinizing loan documents to hand back more souring debt to top lenders and servicers. Last year, banks repurchased $8.7 billion worth of single-family mortgages and volumes have been slightly higher this year to date.

Yet there are $4.7 billion in outstanding requests that have not been accepted; more than one-third have been outstanding for more over 90 days.

Buybacks have become an increasing worry for bank investors, since lenders have built up tens of billions of dollars' worth of reserves against potential repurchases. The industry has complained that many of the buyback requests stem from minor issues with paperwork, rather than significant underwriting flaws. In an effort to ease investor concerns, they also point out that, as a result, many of the repurchased mortgages are still performing.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.64 +9.41 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs