I think most people don't have a very good understanding of the government's reasoning behind the support of the GSE's. I certainly do not support the majority of what the gov has done lately in regards to the bankink industry, but I do have a reasonably well educated understanding of why they have supported the GSE's to the extent they have. I personally don't believe the GSE's will go below $.30, and fully expect them to move back up towards a dollar within the next month or so....once the shock wears off.
Personally, I believe the majority of the anal-ists that trash the GSE's consistantly are covertly tied to hedge funds and major shorters of the GSE's. Again...thats just my personal feeling.
I found this article to be quite a positive point in support of the GSE's, and have read several others that indicate the GSE's are actively and aggressively going after the banks that packaged fraudulent/suspect loans and dumped them on the GSE's.
By Dawn Kopecki
June 17 (Bloomberg) -- The Securities and Exchange Commission pressed JPMorgan Chase & Co. to tell investors more about mounting demands to buy back defective mortgages, an obligation that cost the four biggest U.S. lenders about $5 billion last year.
The SEC asked the New York-based company to disclose more about reserves set aside to cover the cost of repurchasing bad loans it sold to Fannie Mae, Freddie Mac and other investors, according to a Jan. 29 letter released today. The SEC also told the bank to provide more details on when and how it recognizes losses on mortgages that have been modified as well as on soured credit-card debt.
“What they’re asking for is a lot more than the banks put out in the public domain right now,” said Christopher Whalen, a bank analyst at Torrance, California-based Institutional Risk Analytics. “This is going to make life uncomfortable for a lot of the banks, because once they start mandating this kind of disclosures, it’s going to stay.”
Lenders that sell mortgages to Fannie Mae and Freddie Mac have to provide warranties assuring that the loans conformed to the agencies’ standards. With more loans going bad, the government-sponsored companies are demanding that banks turn over loan files so they can scour the records for missing documentation, inaccurate data and fraud, information that can be used to force loan buybacks.
Fannie Mae and Freddie Mac, seized by federal regulators in September 2008, asked the bank to repurchase $2.7 billion in defective loans in 2009 and $1.4 billion in 2008, JPMorgan said. The lender held $2 billion in reserves at the end of the first quarter against future buyback requests.
Defective Loans
Of the total requested, JPMorgan repurchased $1.1 billion in defective loans in 2009 and has offered more than 750,000 borrowers trial modifications to try to “cure” their delinquent loans, JPMorgan said in a separate filing. About 127,000 received permanent repayment plans. The bank’s mortgage portfolio swelled to $292.6 billion from $115.8 billion from 2006 through 2008. The company’s response to the SEC sheds new light on the company’s worst-performing loans made during the housing boom.
In requesting the information, SEC staff told JPMorgan Chief Financial Officer Michael Cavanagh that their comments and the company’s response “do not foreclose the commission from taking any action with respect to the filing.” The SEC concluded its review of JPMorgan’s loan-loss disclosures, which the bank included in a Jan. 15 securities filing, on May 3. SEC spokesman John Heine and JPMorgan spokesman Joe Evangelisti declined to comment.
More Demands
Before 2008, demands from Fannie Mae and Freddie Mac weren’t significant, JPMorgan told the SEC in its March 2 response. “However, beginning in 2008, JPMorgan Chase experienced a higher volume of demands; these demand volumes have steadily increased every quarter,” Corporate Controller Louis Rauchenberger told the SEC.
Washington-based Fannie Mae and Freddie Mac, in McLean, Virginia, may ask U.S. banks to repurchase $17.2 billion in faulty loans this year, Oppenheimer & Co. analyst Chris Kotowski estimated. Kotowski said in a June 9 report that U.S. banks could lose $6 billion this year when those loans are returned and get marked down to their true value.
“It is a problem that will continue to drag on the big banks to the tune of several hundred million per quarter, but it’s not a problem that is mushrooming out of control,” Kotowski said.
Third Parties
JPMorgan told the SEC that 75 percent of its current repurchase requests stem from loans originated in 2007 and 2008 and that it is able to file claims against third-party originators on 40 percent of all repurchase requests.
The SEC questioned the bank’s calculations for its allowance for loan losses, relating to breaches in the agreements it has with Fannie Mae, Freddie Mac and other mortgage investors.
“Estimating the allowance is highly subjective, and is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors,” JPMorgan said.
To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.com
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