Risks and Costs of Mortgage Putback Still High

By Sari R. Updated on 8/22/2012

Banks continue to be challenged in the second quarter by repurchase risks on agency and private-label mortgages as put-back demands remain high.  Analysts came to this conclusion after analyzing the second quarter’s mortgage industry results. 

At Fannie Mae, 2Q loan repurchase demands hit $2.34 billion – down from $2.36 billion in 1Q and $2.9 billion a year ago.  Repurchase requests hit $1.17 billion for Freddie Mc in 2Q, down from $1.2 billion one year ago and up from $854 million for the first quarter.

Outstanding repurchase requests at Fannie Mae hit $14.5 billion during 2Q, an increase from $12.1 billion in the first quarter.  At Freddie, outstanding requests decreased from $3.23 billion in the first quarter to $2.9 billion in the second quarter. 

Analysts believe that outstanding rep and warranty repurchase demands are high due to government-sponsored enterprise requests.  For example, Bank of America’s increase in repurchase claims ($8.19 0%) is a direct result of private label put-back requests (in addition to its ongoing feud with Fannie Mae).

These analysts expect that the repurchases will remain high throughout the remainder of 2012 but think it’s likely that they reached their peak in 2011.  Analysts think lenders should still expect to see heightened levels of repurchases for the next 18 – 24 months.

Overall, mortgage banking results for 2Q remained relatively positive.  Mortgage originations hit $405 billion in 2Q – up 5.2% from originations in 1Q and up 44.6% from last year.