Freddie Mac has advised its seller-servicers that it will begin issuing repurchase demands on older vintages in a move that adds to the uncertain environment mortgage bankers operate in.
In its third-quarter earnings report, the McLean, Va.-based company said that outstanding repurchase requests were at $2.9 billion as of Sept. 30. The ending balance reflected $2.2 billion in new requests issued during the prior three months.
Those numbers are likely to grow based on what Freddie told its customers last week.
On Tuesday at the Goldman Sachs Financial Services Conference in New York, U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis talked about a call he got from the secondary lender.
“Apparently, nobody else has said this today, so at least we’re gonna to tell you something that happened to us, and we understand it happened to others,” Davis said, according to a recording of his presentation. “But on Friday evening, Freddie Mac advised us, and they said other large servicers, that you know the putback they’ve been going through from 2006 forward on loans that you’ve sold to them that they’re evaluating, they’re increasing that putback now to ’04 and ’05.”
Davis called the change unexpected and “very important.”
The CEO noted, however, that they weren’t a big seller to Freddie in 2004 and 2005.
The impact to fourth-quarter earnings is expected to be one or two cents a share.
Davis explained that such uncertainty acts as a dark cloud hanging over the mortgage industry.
“That is the reason the mortgage business gets harder to love, cause you don’t know whether or not you’re done with it,” Davis continued. “There used to be kind of a statute, or an unspoken statute, of how long you could hold a transaction, sell the transaction, underwrite a transaction, or close out a deal, and to the extent to you’ve seen this and other places different agencies reach back and want to check and see how you did — even if the rules were right then, even if that own agency approved it then — it seems as that it still is at risk.”
He said that such liability would deter him from doing a merger or acquisition of a firm with potential legacy repurchase liability.
