FHFA Concerned Over Repurchase Requests

Written by John Clapp
on September 15, 2010 No Comments
Categories : Residential Mortgage

6675_87700778 FHFA Concerned Over Repurchase Requests [UPDATED to include DeMarco's comments on the FHFA's subpoenas to MBS issuers and the Affordable Advantage programs offered by state housing finance agencies in conjunction with Fannie Mae.]

Outstanding loan repurchase requests from the government-sponsored enterprises (GSEs) remain a major concern for the Federal Housing Finance Agency (FHFA), according to FHFA Acting Director Edward J. DeMarco, who testified before a House subcommittee Wednesday.

In prepared remarks, DeMarco stated that Fannie Mae and Freddie Mac had a combined $11.1 billion in outstanding purchase requests at the end of the second quarter and that more than one-third of the requests have been outstanding for more than 90 days.

‘The delays by lenders in repurchasing these loans are a significant concern to FHFA,’ DeMarco said, adding that the GSEs' regulator and lenders are discussing ways to reach ‘a workable solution.’

‘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,’ he said.

Lenders repurchased $8.7 billion of single-family loans from the GSEs last year, and DeMarco says the volumes being repurchased this year are ‘slightly higher.’

DeMarco's testimony was part of the House Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises' progress report on Fannie Mae and Freddie Mac. DeMarco, along with Treasury Assistant Secretary for Financial Institutions Michael S. Barr, updated lawmakers as Congress looks ahead to reforming the housing finance system and figuring out what to do with the two housing leviathans. Fannie and Freddie have drawn $148 billion from the U.S. Treasury Department since falling under government conservatorship two years ago.

The FHFA, in its responsibility to conserve the GSEs' assets, has been actively requesting that lenders repurchase loans that the regulator says fail to meet the GSEs' underwriting and eligibility guidelines. Rep. Paul Kanjorski, D-Pa., chair of the House subcommittee taking up the GSEs Wednesday, has urged the Obama administration to further support the FHFA's push for repurchases.

In addition, the FHFA issued 64 subpoenas to trustees and servicers in July. The subpoenas sought loan files and transaction documents associated with private-label mortgage-backed securities (MBS) purchased by the GSEs. The documents will help the FHFA determine whether private-label MBS issuers are liable to the GSEs for certain losses, DeMarco said.

He told subcommittee members that the agency has begun receiving information from trustees and servicers but offered no estimate of how long the FHFA's review process would take.

‘That process will take some time,’ DeMarco said.

At the pressing of Rep. Judy Biggert, R-Ill., DeMarco also commented on Fannie Mae's controversial Affordable Advantage program, in which Fannie Mae buys no- and low-down-payment mortgages from state housing finance agencies (HFAs). The program represents a limited-term agreement between Fannie Mae and the state HFAs, and the mortgages are designed for first-time home buyers with good credit and employment histories.

The contract between Fannie Mae and the state HFAs expires in March 2011. Loans made under the program represent a total of less than $10 million so far, DeMarco said.

‘This one got away from us,’ he told Biggert. ‘It was a miscommunication, and this agreement was signed without my knowledge.’

Other requests for similar programs have been declined, DeMarco stated, adding that the current Affordable Advantage programs will ride out their contract terms.

‘When this particular program with these HFAs expires, it will not be renewed,’ DeMarco said.

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