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Oct. 11 (Bloomberg) -- Fannie Mae and Freddie Mac are increasingly demanding sellers repurchase mortgages that default years after they were made and buy back recent loans that aren’t even delinquent, according to PHH Corp., the sixth-largest U.S. home lender.
“They’re casting the net wider than they used to,” Luke Hayden, head of PHH’s mortgage unit, said in an interview yesterday at the Mortgage Bankers Association’s annual conference in Chicago.
The government-supported mortgage-finance companies, have typically targeted their reviews of soured mortgages at loans that default within a few years. Widening the array of mortgages the two firms sell back would mean lenders will face more difficulty escaping losses from mortgages granted before the worst housing collapse since the Great Depression began accelerating in 2008.
An examiner at Fannie Mae and Freddie Mac’s regulator raised concerns in March 2010 about Freddie Mac failing to seek repurchases on earlier loans that didn’t match their promised quality, the Federal Housing Finance Agency’s inspector general said in a Sept. 27 report criticizing the practice.
The official noted Freddie Mac had then reviewed less than 10 percent of failed 2005 and 2006 loans, “eliminating any chance to put ineligible loans back to the lenders from those years” and potentially costing the company billions of dollars, the report found.
Bank of America Corp., which in 2008 bought Countrywide Financial Corp., then the country’s largest mortgage lender, has said this year that Fannie Mae and Freddie Mac’s approach has been “evolving.” That signaled a tougher stance by the companies as the FHFA, under acting director Edward DeMarco, steps up its effort to have them recoup losses.
“The FHFA is taking its mandate very seriously,” PHH Chief Executive Officer Jerome Selitto said in the interview. His Mount Laurel, New Jersey-based company is able to rebuff about two-thirds of repurchase demands by the companies, Selitto said.
--With assistance from Lorraine Woellert in Washington. Editors: John Parry, Pierre Paulden
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