Fannie Mae and Freddie Mac are reportedly going to force Bank of America Corp. (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co. (NYSE:WFC) and Citigroup Inc. (NYSE:C) ot buy back up to $21 billion in residential mortgages in 2010 in response to what they consider mortgages which shouldn’t have been made in the first place.
That’s according to Oppenheimer & Co. analyst Chris Kotowski who estimates the losses from bad mortgages could reach as high as $7 billion in 2010 for the banks.
The losses of up to $7 billion would the consequence of the banks writing down the loans and their real value are imposed on them.
After the outrageous losses incurred by Fannie Mae and Freddie Mac in 2007, which came to around $202 billion, the government-controlled entities are putting pressure on the big banks for throwing them those mortgages which created the problem in the first place, although Fannie Mae and Freddie Mac were just as culpable in their lax standards as well.
Some industry watchers say the banks and Fannie and Freddie are starting to have a love/hate relationship, but if the banks want to participate in originating mortgages, dealing with buying back mortgages is going to be part of doing business going forward.
The idea behind this seems to be that Fannie and Freddie are attempting to make it difficult for lenders who may continue to originate questionable loans.
In the end that’s probably a good thing, but it’s something the banks should have been doing all along of course.
