Regional and midtier banks are seeing rising repurchase demands from government-controlled secondary market giants, Fannie Mae and Freddie Mac, according to a new report from Fitch Ratings.
PNC Financial Services, SunTrust and First Horizon all recently announced they intend to boost reserves against future GSE mortgage repurchase claims.
This suggests, Fitch says, that the “GSEs may be sharpening their focus on recovery at regional banks.”
Earlier this week, the Federal Deposit Insurance Corp. directed banks to provide new data on their repurchase reserves when filing their second-quarter call reports with the agency.
Fitch notes that Fannie and Freddie have $24.7 billion in outstanding claims against the five largest banks and 60% of those demands are against Bank of America.
“The continuing flow of mortgage repurchase requests by Fannie Mae and Freddie Mac show no signs of ending quickly and the effects of increased representation and warranty claims on the financial results of U.S. banks are likely to grow in the near term,” Fitch says.
However, future GSE claims are unlikely to have a material impact on bank capital positions. “We do not expect the level of repurchase claims, viewed in isolation, to have a large impact on U.S. bank ratings,” Fitch said.
According to figures compiled by the FDIC, insured depositories repurchased $3.3 billion in first mortgages in the first quarter, down from $4.25 billion in 4Q.
