Although profit margins are still healthy for most mortgage banking firms, net income in the new year will continue to be impacted by “high” rep and warranty expenses, according to a recent report from Keefe, Bruyette & Woods.
“We believe that most of the rep and warranty related costs in 2012 will continue to be related to GSE loans,” writes KBW analyst Bose George and his staff.
Since the housing bust back in 2008 Fannie Mae and Freddie Mac have been pressuring their sellers/servicers on both loan buybacks, and reps and warranties. (Reps is industry jargon for representations.)
Fannie, in particular, has been stepping up the pressure on its customers, and according to KBW “sharply increased its repurchase demands” in the third quarter.
In a few weeks the nation's largest lenders – Wells Fargo & Co., Bank of America, and JPMorgan Chase – will begin reporting 4Q results and along with them, their respective mortgage repurchase problems.
