Mortgage Putbacks Are Back, With GSEs Doing the Putting

[Dover]

Mortgage Putbacks Are Back, With GSEs Doing the Putting

American Banker | Wednesday, November 12, 2008

By Harry Terris

Mortgage originators are facing a new wave of forced loan repurchases as the government-sponsored enterprises step up reviews for underwriting problems.

The current wave differs in several respects from the one that drove numerous mortgage companies out of business in late 2006 and 2007. Back then, the requests came largely from private investors like Wall Street firms, and they were triggered mainly by defaults that occured within a few months of the loan closing.

The new loan putbacks are coming from Fannie Mae and Freddie Mac, which generally have more power to return loans than private investors. And though mounting delinquencies are driving the GSEs' reviews, the loans being sent back are often several years old, and not all of them are delinquent. Some lenders have claimed that the GSEs have gone too far, pushing back loans for minor oversights that are not relevant to credit performance.

Some also said that more vigorous putbacks have led to more careful underwriting and have spurred counterparties further down the mortgage food chain to toughen standards on one another.

"If you're a mortgage banker, and you sell a loan to a GSE-sponsored company … the number one thing you have to be worried about is that at some point, that loan is going to have to be repurchased due to a fraud claim by the GSE," said Scott Stern, the chief executive of Lenders One, a cooperative of mortgage banks based in St. Louis.

Rob Chrisman, the director of capital markets at Residential Pacific Mortgage, a Walnut Creek, Calif., lender, said the increase in repurchase requests from the GSEs became discernible about two months ago. But small and midsize lenders may not have felt the full impact yet, he said, since such demands take time to filter through the aggregators that deliver most loans to the GSEs.

The aggregators sometimes put up a first line of resistance against buying back loans, Mr. Chrisman said. "The whole process … takes like a month or two," because the aggregator "doesn't want to buy back the loan any more than the small lender does," he said.

Repurchase demands have included performing loans with minor lapses in documentation, he said. Originators sometimes can recover missing documents and resolve the problem, but meeting a repurchase demand on even a single loan can strain small originators.

The increase in repurchase demands has been "overkill," Mr. Chrisman said. "I think there's general agreement that the pendulum has swung too far."

In an e-mail, a spokeswoman for Fannie Mae said the increase in repurchase requests is the result of "the increase in defaults, not any change in policy..cont'd

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[Joanne98]

1. Man. Have you ever seen such a mess. I don't think we're going to make it.

I'm getting VERY worried. Nothing is going right. Nothing is working and the crooks just keep on stealing. I think we're fucked.

[Waiting For Everyman]

2. Maybe the putbacks are because of note-challenges during foreclosures?

I think "missing documents" is an understated way of saying they don't have the underlying notes... and they know it.

Betcha the originators don't have them either.