Reports from a mortgage banking industry conference indicate that demands that U.S. banks repurchase faulty loans made during the housing boom emerged as one of the most sensitive topics for mortgage bankers at a conference on Monday.
Instead of owning up to the passing on of risk to the masses in the form of securitized loan bundles, one executive urged the industry to push back harder.
Banks over the past year have been under siege from the demands, primarily at the hands of U.S. mortgage funding giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB). Shares of some banks have come under pressure due to speculation the costs associated with loan repurchases will rise.
In order to sell loans in bundles or to companies buying loans to service, banks apparently did not enforce standards as they should have:
The demands for the banks to buy back mortgages are typically based on violations of so-called representations and warranties, used by lenders to assure investors of that all aspects of the loan are as stated. The lax enforcement of such standards led to folly, or fraud, in lending during the boom, analysts said.
While many may consider forced repurchases a form of justice, Ron McCord, chairman of First Mortgage Co, stated:
…that the repurchases do more harm than good by chilling lending. “This industry has to stand up and say, enough is enough,” he said, to applause.
While there’s a lot of blame to go around for the credit crisis and housing market mess, most people applying for home loans counted on banks (and still do) to be able to more accurately assess the ability of the borrower to repay in full. After all, they’ve all been in the lending business for a long time.
The bank wouldn’t lend it if it wouldn’t get it back, right?
Apparently that’s not the case.
With the knowledge that a loan would be sold to another company or securitized or bundled with others into a type of bond, apparently corners were cut just to sign up more borrowers.
After reaping the rewards of the fees and interest from what nearly amounts to “ill-gotten-gains” the originators don’t want to buy back the loans they sold at a value derived from faulty or fraudulently inflated data.
This is the kind of garbage that is going on “behind the scenes” in today’s foreclosure crisis. None of it matters much to the homeowners trying to sell in depressed markets.
If you have been caught up in the Recession and need to sell your house in Connecticut, call Brad Whiteman. He can help you by outlining realistic options and prices, and suggest other professionals if they are needed to help you achieve the best outcome possible for your situation.
