It's been three long years since the GSE “buyback” wars commenced in earnest, and you would think by now the worst might be over. Well, think again.

Fannie Mae and Freddie Mac have hired outside contractors and attorneys to press their claims against their largest seller/servicers — firms that sold now-defaulted mortgages to the GSEs during the industry's “go-go” years. So far, most of that activity has centered around Fannie/Freddie guaranteed loans.

But a new front is forming in this war — and according to industry sources close to the situation, come 2012 both GSEs will be pressing claims against issuers of private-label MBS that sold 'AAA'-rated pieces to the two.

These sources noted that the coming buyback requests are in addition to a pending massive civil lawsuit that the Federal Housing Finance Agency filed against 17 private-label issuers back in early September.

Tom Deutsch, executive director of the American Securitization Forum, said he has no direct knowledge of the GSEs' strategy, but noted that pressing buyback claims “is easier to win” than a court case. “If you succeed on one then the other goes away.”

Deutsch said Fannie and Freddie pressing PLS-related buyback claims does not surprise him. “There could be a merit to some of these claims.”

Fannie and Freddie, through spokespersons, declined to comment.

One source familiar with the matter said Freddie has already hired an outside contractor that is busy reviewing 50,000 PLS files.

Almost all of the GSEs' largest mortgage banking customers continue to fear buybacks — for obvious reasons — and have been ultra-careful to originate only the most pristine of mortgages the past two years.

But will any of the private-label issuers actually repurchase the assets they sold to the two? “It will be a case of cough up the money or we're going to court,” said one consultant.

At last check Fannie Mae had $9.6 billion of outstanding buyback claims on its books, a $1 billion increase from earlier in the year.

Freddie Mac, on the other hand, has experienced a slight decline in outstanding requests: $2.7 billion at Sept. 30 compared to $3.1 billion at midyear.

All of these figures exclude PLS assets.

Bank of America, as might be expected, could have the most exposure on the PLS side. Through an August 2008 purchase, B of A inherited Countrywide Home Loans and what's left of Countrywide Securities Corp., once a top-ranked issuer of residential PLS.

In a recent filing with the Securities and Exchange Commission, BofA revealed that Countrywide sold roughly $1.1 trillion of loans to the GSEs from 2004 to 2008.

The delinquency rate on that book of business is about 11% (180 days or more past due). BofA has been hit with $30.9 billion of buyback claims, $25.5 billion of which have been resolved.

Presumably, most of these loans were A paper products — but it's no secret that Countrywide was also a large seller of Alt-A and payment-option ARMs, and a securitizer. The buyer was Fannie in some cases. Will these deals come home to roost in the year ahead? Will B of A feel a new round of buyback pain? If so, it won't be the only one. PLS issuers of yesteryear might want to lawyer up some more.

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