Regulator Says Banks Slow to Buy Back Bad Loans

From the Associated Press:

A federal regulator is criticizing banks for failing to take back bad mortgages sold to giant mortgage buyers Fannie Mae and Freddie Mac.

Edward DeMarco, acting director of the Federal Housing Finance Agency, says in testimony prepared for a House subcommittee hearing Thursday that the two government-controlled companies had tried to send more than $11 billion in bad loans back to lenders as of this summer, but have met resistance.

A third of those requests have been outstanding for at least three months. DeMarco said delays by lenders in repurchasing these loans are a "significant concern."

Investors who buy loans from banks have the right to force lenders to repurchase them if they later discover fraudulent statements on loan applications.

Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans — even after the housing market collapsed.

Bank Profits Rise, But So Do Bad Loans

Lately major financial institutions have been boasting higher profits lately to assure consumers they have rebound from the economic crisis. However, a new Federal Deposit Insurance Corp. report is asserting that although banking profits have increased, so have the number of bad loans.

Even though profits increased sharply, troubled assets continued to grow. According to the Workshop's analysis, 411 banks have a "troubled asset ratio" of more than 100, up from 389 banks at the end of December. In other words, they had more problem loans and foreclosed properties on their books than capital and loan loss reserves.

While not an official FDIC statistic, the troubled asset ratio has proven to be a strong indicator of bank stress. Of the 81 banks that have failed so far this year, nearly all had trouble asset ratios above 100, according to their latest FDIC reports.

One especially troubling fact: the FDIC reported that mortgage delinquencies hit an astounding 10.8 percent in the first quarter, up from 6.4 a year ago and just 1.2 percent three years ago. Those numbers may portend more defaults and foreclosures over the next several months.