Banks are reaping what they sowed.  As you know, during the housing boom, all the banks wanted were more and more mortgage loans. They loosen the rules that  so low that credit scores did not seem to matter, as long as you were breathing and had a pen to sign mortgage documents. So now they have to buy back their bad loans!

According to the Wall Street Journal:

“The accountants at Fannie Mae and Freddie Mac are  auditing mortgage files to uncover loans with improper documentation about a borrower’s income, and then forcing banks and savings and loans to buy the loans back.

Freddie required lenders to buy back $2.7 billion of loans in the first nine months of 2009. Fannie Mae won’t disclose its figures, but the mortgage trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.”

Of course now, the banks are tightening up their underwriting for mortgage loans more carefully than they were just a year ago.  This results in a further slowing down of the lending process. Which is good and bad of course. But I think in the long run it will be better for all of us. What do you think?

Written by John J. O’Dell
Real Estate Broker
With a background in Civil Engineering
and General Contracting