Unhappy Buyers Lean On Lenders to Repurchase Subprime, Home Equity and Real Estate Loans

Calabasas, Calif.–Some lenders–already reeling from mortgage investments–including Calabasas, Calif.-based Countrywide Financial Corp. are now feeling pressure from loans they passed off to investors, The Wall Street Journal reported Wednesday. Buyers who are dissatisfied with subprime mortgage, home equity loan and real estate loans they purchased are trying to get banks and mortgage companies to buy back problematic loans.As a result, some large lenders are earmarking significant reserves for possible repurchases. Countrywide–the largest U.S. mortgage lender, which announced a first-quarter charge of $133 million for already-paid claims–said its anticipated liability for such claims rose from $365 million last year to $935 million as of March.Many loan sales contain provisions that force lenders to take loans back that default quickly or involve mistakes or fraud, the Journal said. And the possible liability related to the increasing amount of disputed loans could swell to billions of dollars, according to Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey & Co.In 2006, disputes began to get press as an increased amount of subprime mortgages became troubled soon after origination. The issues have grown in recent months to include home equity loans and mortgages issued to borrowers with good credit.Many disputes include questions about false appraisals and misrepresented incomes. The possible liability could affect lenders for years to come, the Journal said.Fannie Mae recently said it is reviewing every defaulted loan and trying to get lenders to buy loans back that didn’t live up to predetermined quality standards. A Freddie Mac spokeswoman also said the company had seen an increase in claims.Although repurchase claims frequently are dealt with by negotiation or through arbitration, a growing amount are being worked out in court: Approximately 20 lawsuits with repurchase requests of $4 million or more have been filed in federal court since the beginning of 2007, the Journal said.