WASHINGTON – The nation's largest banks have an obligation to pay some of the cost for bailing out mortgage buyers Fannie Mae and Freddie Mac because they sold them bad mortgages, a government regulator said Wednesday.
Edward DeMarco, the acting director for the Federal Housing Finance Agency, said the banks this summer have refused to take back $11 billion in bad loans sold to the two government-controlled companies, in written testimony submitted for a House subcommittee hearing Wednesday. A third of those requests have been outstanding for at least three months.
DeMarco said the banks have a legal obligation to buy back the loans and called the delays "a significant concern." He said the government may take new steps to force those buybacks if "discussions do not yield reasonable outcomes soon."
In an interview with reporters after the hearing, DeMarco declined to give further details on what the government might do next. He said only that "we're looking for contractual obligations to be fulfilled."
The two mortgage giants nearly collapsed two years ago when the housing market went bust. The government stepped in to rescue them and it has cost taxpayers about $148 billion so far. The rescue is on track to be the most expensive piece of stabilizing the financial system.
Investors who buy loans from banks have the right to force lenders to repurchase them if they later discover fraudulent statements on loan applications.
The leading Democrat on the House Financial Services Committee subcommittee indicated the banks bear some responsibility.