Banks 'may face $180bn in Fannie and Freddie loan repurchases'

19 August 2010

Fitch Ratings has warned that some of the largest US banks may have to make loan repurchases of up to $180 billion from Fannie Mae and Freddie Mac.

Bank of America, Citigroup, Wells Fargo and JPMorgan Chase are the four banks servicing half of the $355 billion worth of troubled mortgages currently held by the two government-sponsored loan guarantors, reports Bloomberg.

Fitch stated that "an extremely adverse scenario" could result in debt eligible for purchase being more than $175 billion, but it is likely that lesser demands will have to be met.

Under the "moderate" scenario, losses may be around $27 billion as the banks take back about 35 per cent of the loans and recover 55 per cent of the money.

Meanwhile, a "mild" situation could see a cost of $17 billion, as 60 per cent of the capital is recouped and one-quarter of the loans are returned.

Earlier this month, an inside source told the Wall Street Journal that Bank of America is considering reducing its 34 per cent stake in asset management company BlackRock as its continues to reposition its balance sheet.

By Claire Archer

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