Residential Loan Buybacks Still at Elevated Levels

FDIC-insured banks had to buy back $1.9 billion of defaulted mortgages during the second quarter after facing heavy repurchase demands from investors during the first and fourth quarters. According to Federal Deposit Insurance Corp. call report information, banks repurchased $3.4 billion of mortgages in the first quarter and another $3.3 billion in the fourth quarter of last year. The two banks repurchasing the most in single-family loans in 2Q were JPMorgan Chase ($380 million) and Bank of America ($252 million). However, in the first quarter JPM had $2.2 billion in buybacks. BoA had $299 million. Both are on the hook for troubled loans they took control of when they purchased two ailing mega-mortgage lenders — Countrywide in the case of BoA, and Washington Mutual in the case of JPM. Secondary market investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that do not comply with their underwriting requirements. Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.