In addition, the mortgage insurance companies are rescinding coverage on more loans, which is putting even more pressure on lenders.
MI "rescissions of mortgage insurance coverage continued to increase in the first half of 2010," Freddie Mac said in a recent public securities filing.
When an MI rescinds coverage, it signals the insurer has determined the lender breached the representations and warranties it made to the GSEs—which means the MI will not pay a claim to Freddie or Fannie for the insured portion of the loan.
This forces the GSE to go back to the lender to negotiate a buyback or reimbursement for losses.
Freddie currently has $5.6 billion in buyback requests outstanding and 24% of those requests are more than 120 days old and remained unpaid as of June 30.
To insure more timely payments, Freddie said it is now requiring "certain seller/servicers commit to plans for completing repurchases, with financial consequences or with stated remedies for noncompliance, as part of the annual renewals of our contracts with them."
Freddie collected $1.4 billion from loan repurchases in the second quarter, compared to $911 million in the year-ago period.
The GSE also received $676 million from MIs during the first six months of this year, compared to $421 million during the same period in 2009.
Freddie still has $1.3 billion in unpaid MI claims as of June 30, compared to $1 billion at the beginning of the year.
Fannie Mae reported that its seller/servicers repurchased $1.5 billion in bad loans in the second quarter, down from $1.8 billion in the first quarter.
However, Fannie said it had unpaid buyback requests of $1.5 billion at June 30, compared to $964 million a year ago. "Our primary mortgage servicer counterparties have generally continued to meet their obligations to us," Fannie said.
The GSE has a backlog of claims totaling $3.6 billion that the MIs have not paid, compared to $2.5 billion at the beginning of the year.
MIs paid Fannie $3.5 billion for claims on primary and pool insurance during the first half of this year, compared to $3.6 billion for all of 2009.
Meanwhile, lenders like Bank of America are getting caught in the middle when they contest buybacks, especially when the MI refuses to pay claims on insured defaulted mortgages.
B of A reported that disputes are growing over "unresolved" repurchase requests primarily with the GSEs and mortgage insurers. "Overall, disputes have increased with buyers and insurers regarding representations and warranties," B of A said.
The Charlotte bank, the second largest home lender in the U.S., said it had $11.2 billion of unresolved repurchase requests at June 30, compared to $7.6 billion in January. The GSEs account for $5.6 billion of those unresolved requests and the mortgage insurers account for $4 billion.
B of A said it has experienced a "very limited number" of repurchase requests related to private-label mortgage securities.
