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Could Freddie Mac Repurchase Plan Yield the GSE $3.4 Billion?

by Chicago Agent

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A new repurchase plan advocated by the inspector general of the Federal Housing Finance Agency could yield Freddie Mac billions in new revenue and save taxpayer money.

By Peter Ricci

A Freddie Mac repurchase plan, which would involve the GSE essentially forcing lenders to buy back toxic mortgages that it once guaranteed, could net the company as much as $3.4 billion, according to new analysis from the inspector general of the Federal Housing Finance Agency (FHFA), with $1.2 billion of those funds coming in 2012.

The key to the higher yields, according to the inspector general, is a wider review process by Freddie, one that would consider more loans eligible for the repurchase plan. In its analysis, the inspector general reviewed 350,000 loans.

Freddie Mac Repurchase Plan – Missed Opportunities

In the second quarter, lenders paid Freddie Mac $1.2 billion in repurchases mortgages, and as of June 30, an additional $2.9 billion of repurchase requests are still pending. Awfully big numbers, to be sure, but as the inspector general’s report highlighted, Freddie was missing out on additional repurchase opportunities:

  • According to inspector general’s first report, which was conducted last September in light of a $1.35 billion repurchasing agreement with Bank of America, Freddie’s repurchase plan was flawed.
  • Freddie would examine loans that had become non-performing within two years of origination, or that had payment problems within the first two years.
  • What that repurchase plan excluded, though, were the many, many loans that Freddie had guaranteed during the housing boom years of 2005 to 2007, even though those loans were by far the lowest performing on Freddie’s balance sheet.
  • Thus, the inspector general recommended a broader repurchase plan for Freddie, and concluded the end result would be a significantly higher return for the GSE.

Significant Benefits to Repurchase Plan

As HousingWire noted, there are 100,000 mortgages just in 2006 that could be reviewed under the broader repurchase plan recommended by the inspector general. Freddie has received more than $72 billion in taxpayer funds since entering conservatorship in 2008, but the inspector general did mention in the report that if Freddie conducts the recommended reviews – and receives the anticipated funds – it would reduce Freddie’s draw requests from the Treasury and save taxpayer money, which is always a good thing!

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