Fitch has made plans to review mortgage loan repurchases by Fannie Mae and Freddie Mac to see if they could affect the ratings of U.S. banks.
The rating agency said that major banks have "effectively acknowledged" this development and are addressing it by increasing their representation and warranty reserves but still believes banks' ratings could be "vulnerable."
Fitch said its review aims to assess whether Fannie and Freddie have become more aggressive when it comes to their repurchase requests and whether this could expose banks with large origination operations to future losses that have not previously been considered in the exposures Fitch looks at in its ratings.
Currently the rating agency sees the four largest banks as facing the greatest likelihood of material GSE repurchase risk, which could result in a combined loss of roughly $17 billion-$42 billion. But those figures do not include the ability to cure deficiencies in loans, which could lower the amount, Fitch said.
