Fannie Mae and Freddie Mac are encountering growing opposition from banks as they try to make lenders including JPMorgan Chase & Co (JPM) and Bank of America Corp. (BAC) buy back failed mortgage loans.

The two government-owned companies are trying to enforce contracts that require banks to take back loans that don't meet certain underwriting standards, Bloomberg News reported.

As of the end of September, banks had not responded to buyback requests worth $13 billion.

Lenders say that Fannie and Freddie are unfairly second-guessing appraisals, accusing the originators of failing to verify borrower income or blaming the failure of loans on minor technical errors.

About 40% of the requests are eventually withdrawn once the lender provides additional paperwork, according to John Courson, CEO of the Mortgage Bankers Association.

"We're burning a lot of stockholder resources, and clearly a lot of Fannie and Freddie resources, to have 40 percent of these things rescinded," Courson told Bloomberg News. "It hurts the banks and frankly we're wasting government resources, too."

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The Mortgage Loan is a loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower is failed to pay back the loan, the banker can retrieve the lent money by selling the property.

July 20 2013 at 8:06 AM Report abuse rate up rate down Reply