When Will the GSE Buybacks Stop?

Remember the good old days when mortgage bankers were considered the “good guys,” the ones who put people in houses? And remember when it appeared that plenty of outside capital was itching to get into this industry? Actually, there's plenty of private equity money currently eyeing the sector and we also have industry veterans the likes of Rich Mirro and John Robbins getting back in, one way or another. So, I'm going to go out on a limb here and say the tide is turning for the industry – somewhat. The two biggest stumbling blocks to the mortgage market returning to a healthier position are loan buyback requests emanating from the GSEs, and servicing “penalty” fees from the GSEs. Lenders are just plain old scared about buybacks, feeling that Fannie Mae and Freddie Mac are almost venal about it. Why do you think Bank of America is heading for the exits? As for servicing penalty fees, the situation boils down to this: the GSEs are dinging servicers for not foreclosing fast enough. Yes, that's right: the White House/executive branch -- which basically owns the GSEs via the U.S. Treasury -- is trying to help troubled borrowers (supposedly) with their underwater loans. But at the same time Fannie and Freddie are penalizing servicers that are late to foreclose. That's what we call irony. We'll be exploring this topic in a larger article next week.