I read an article stating that the banks that sold bad mortgages to Fannie Mae and Freddie Mac are contractually obligated to buy back these bad loans. Many of our nation’s largest banks have not made good on their commitment to do so. Does anybody wonder why? And, why do these same lending institutions make such a rancor when the consumer comes to them for help, as they are doing likewise to the Government-Sponsored Enterprise (GSE’s).
A director from the Federal Housing Finance Agency (FHFA) stated that as of the end of the second quarter this year, Fannie Mae and Freddie Mac combined had over $11 billion in outstanding buy back requests and more than one-third of those requests were over 90 days outstanding! He said that there are ongoing discussions between the GSE’s and the lenders to reach a workable solution and if the discussions do not initiate action soon, then FHFA would look to its conservator and supervisory authorities for resolution.
Repurchase requirements are one methodology that FHFA is pursuing to mitigate losses for both Fannie Mae and Freddie Mac, to limit any more capital infusion from the Treasury Department.
Since these two giant organizations have been in conservatorship they have drawn $148 billion in taxpayer dollars from the United States Treasury. Their combined borrowing cap was set at $400 billion in bailouts. But that cap has been lifted and it seems they have the ability to withdraw whatever sums they need.
This director also stated that loan modifications as opposed to foreclosure and refinances would also help curb the losses that the GSE’s are sustaining.
I personally feel like it is a bad idea to throw good money after bad by continuing to prop up these two institutions. And, what about the bailout money that banks and other reputable institutions received? I am only aware of a handful of successful loan mods as I talk with people. With the decline in property values, many underemployed workers, and increased unemployment I am fairly certain that there won’t be enough refinances to minimize the losses for the GSE’s. They’ve already taken the hit! Secondly, and as I posed this question earlier, why aren’t these banks that are contractually obligated making good on their commitment to buy back? Now the shoe is on the other foot and the fit is too small!
This entire dynamic is similar to a dysfunctional relationship including an enabler (choose your entities), victim, and an accuser all contributing to the cycle. Who stands to lose the most? Who will suffer the most? I know one thing for sure, and that is these ill effects will be affecting our nation for many generations to come.
