In efforts to rectify some of the fallout from the housing crash, Fannie Mae and Freddie Mac have forced lenders to buy back about 4.1 billion dollars in faulty mortgages last year and about 1.3 billion dollars in 2008. While the buy backs have been going on for over a year so far, estimated total buy backs for this year may top over twenty billion dollars. The buybacks of faulty mortgages have been forced by Fannie Mae and Freddie Mac because they bought so many of the poorly regulated mortgages that banks created for home owners during the housing boom.
Fannie Mae and Freddie Mac are making the banks buy back their faulty mortgages to hold the banks responsible for loans made with lax requirements to home buyers who could not actually afford to buy a home. These poorly regulated mortgages were a big cause of the numbers of mortgage defaults that helped cause the housing crash. A Freddie Mac spokesperson stated that part of the reason for the buy backs is that tax payer dollars should not be paid out to cover these loans which should never have been made in the first place.
As a result, banks may suffer losses of up to 7 billion dollars this year; returned loans will be marked down to their “true value”. This will make the losses for 2010 mortgage buybacks about $2 billion more than last year. The banks that made these loans in the first place are not pleased that the government, through Fannie Mae and Freddie Mac, are forcing them to buy back these faulty loans that they have made; but when you consider that these banks are the ones which were issuing loans without adequate requirements, it is hard to be overly sympathetic.
According to many mortgage experts, the worst of the loans still in existence are the ones made between 2005 and 2008, over the height of the housing bubble; hopefully as more of the poorly made loans are bought back and more new home loans are made with stricter regulations, the housing market can build up again with a strong foundation of mortgages for home owners who can actually afford them. Only time will tell how long the market will take to heal and with it the confidence of consumers.
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