March 15, 2010 - This Week's Topics:

Mar 15, 2010

Freddie and Fannie Bounce Mortgages Back to Banks

Freddie Mac and Fannie Mae may force lenders to buy back $21 billion in home loans as part of a crackdown on faulty mortgages. Those banks impacted include Bank of America, JPMorgan Chase amp; Co., Wells Fargo amp; Co., and Citigroup, Inc.

In 2009, Freddie and Fannie stuck those four banks with $5 billion in buybacks. According to a Freddie Mac spokesperson, "We are trying to be good stewards of taxpayer dollars, and as a part of that, it's important that those dollars not go to loans that should not have been sold to us in the first place." These efforts seem counterproductive, as the Treasury and Federal Reserve are trying to help banks heal by recapitalizing them; then along came Freddie and Fannie adding more pressure on the banks through buybacks.

In 2009, BOA recorded a $1.9 billion "warranties expense" for buyback loans; JPMorgan Chase recorded $1.6 billion of costs from repurchases; Wells Fargo bought back $1.3 billion in loans; and Citigroup increased its repurchase reserve to $482 million due to a trend by investors for loan documentation packages to be reviewed. While the 2009 mortgages are proving to be of better quality than previous years, mortgage repurchases are expected to crimp bank earnings through 2011.

Unfinished Construction Offers Investors Another Opportunity to Profit

As a bargain hunter and real estate investor, what could be better than this: buy a foreclosed, partially finished house at a deep discount, finish it and sell it again or end up with a really nice, brand new home for a song. Sounds ideal, but it's not always that easy...

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