Freddie Mac Can Receive a $3.4 billion Due to Expanded Repurchase Review

By Sari R. Updated on 9/13/2012

Freddie Mac has the potential to receive anywhere from $2 billion to $3.4 billion as a result of requiring lenders to buy back obsolete/corrupt mortgages.  According to the FHFA, around $1.2 billion of profits could be given to the GSE this year.

Analysts state that the agency has been monitoring its activities, updating estimates of results and modifying plans when reviewing nonperforming loans each month.  The FHFA’s Deputy Inspector General for Evaluations commented that he is working on synchronizing how Fannie and Freddie evaluate repurchase requests.  This is known as the “contract harmonization initiative” and it will be launched at the end of 2012. 

In the second quarter, lenders bought back $1.2 billion faulty home loans from Freddie.  As of June 30, there are $2.9 billion outstanding repurchase requests.  One year ago, the FHFA IG commented that it was concerned about an oversight in repurchase as its regulator monitored how the GSE would handle repurchase claims.

Around 100,000 mortgages originated in 2006 alone had the potential to be reviewed under broader criteria.  The only loans that Freddie was reviewing were ones that defaulted within two years following origination.  According to examiners, many loans defaulted after these two years, which left many loans in the dust.

In late 2011, Freddie proposed that they would scrutinize more loans and the FHFA approved it.  Lenders were alerted by the GSE in March of 2012. 

The magnitude of the review’s final results won’t be realized until 2014.  Since entering conservatorship in 2008, Freddie has extracted around $72 billion from taxpayers.  In August, the Treasury Department made a claim that the 10% dividend payments would soon end and all profits in the future would be given back to taxpayers.