Lenders made representations and warranties that certain loans were good loans. Now that those loans are delinquent, Fannie and Freddie are finally doing their "due diligence" investigating each loan and renegotiating their agreements of purchases of those loans.
If they find the borrowers or lenders lied about information in loan applications and documents, they are requiring the lender to "buy" the loan back.
Mortgage insurers can rescind mortgage insurance - which triggers Fannie & Freddie buybacks - and lenders end up paying insurers to prevent Fannie/Freddie buyback .
Morgan Stanley alone estimates their buybacks to amount to about $17 billion through 2014. (But watch out or the next wave of losses and write-offs - and then more layoffs due to these losses.)
Note: Federal Housing Fiance Agency (FHFA) now regulates Fannie and Freddie. But once Fannie & Freddie get reorganized and either spun-off, or absorbed into government grasp, who knows what Congress is up to. I recently heard Matt Taibbi mention on C-span that AIG was classified as a thrift and not an insurance company and regulated by only one insurance expert in the regulatory agency (Office of Thrift Supervision). I believe the new Financial Regulatory Reform bill (code named - the wimpy milk toast bill) called for a new agency to head up oversight in these areas. Can you say "rearrange the deck chairs on the Titanic, please"?
After the fat,dumb, and happy eater has indulged themselves at the "all-you-can-eat" buffet, they are looking to lose weight.
Too little...too late?
Note: About 9 out of every 10 loans is a government backed loan (about 40% FHA and about 50% Fannie or Freddie Loan) and there are at least $5 Trillion in government backed mortgages...And about 4.5 million homeowners are at least 30 days delinquent on their mortgage right now.
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