Banks' Buybacks of Defaulted Single-Family Loans Surge

Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and BoA repurchased $2.3 billion to satisfy investor demands. Both are on the hook for troubled loans they took control of when they purchased ailing mega-thrifts — Countrywide in the case of BoA and Washington Mutual by Chase. The FDIC information also lists buybacks by Citibank ($898 million), National City Bank ($361.6 million), Wells Fargo Bank ($266 million) and SunTrust Bank ($232.3 million). Investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that don't comply with their underwriting requirements. Freddie Mac forced its seller/servicers to buy back $960 million in bad mortgages in third quarter. (Fannie does not disclose buyback information.) Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.