As Fannie Mae and Freddie Mac increasingly send problem loans back to their seller/servicers for repurchase, banks may not know their full liability in this area, according to a new research report.
Chris Gamaitoni at Compass Point Research and Trading LLC has estimated that banks will have to absorb roughly $27.2 billion in losses over the next three to four years just from repurchases of loans from the government-sponsored enterprises — far less than banks are setting aside in reserves.
In a new research note, Gamaitoni said the GSEs have only "just become operationally efficient" by increasing staffing for loan document reviews.
But in the next few months, they will be forced to resolve a bigger percentage of seriously delinquent loans, pushing more of them back to servicers, particularly for those borrowers who failed to qualify for a permanent HAMP loan modification, he said.
"There is a material risk relating to mortgage losses in the banking sector due to representations and warranties made to the GSEs and other private-label buyers," Gamaitoni said.
He came up with a wide range for potential losses from buybacks with a best-case scenario at $11.9 billion to a worst-case of $64.8 billion for the industry.
Meanwhile, some seller/servicers are not taking buybacks lying down. Many have hired outside counsel to fight the requests and some consulting firms, such as Mortgage Banking Solutions of Texas, are launching new units to help lenders fight repurchase requests from both the GSEs and mortgage insurers.
