Skip to main content

Big Banks Increase Reserves in Anticipation of Buyback Demands

Financial Services Blog

Financial Services Watch Blog
March 15, 2012

Will Big Banks point downstream with even more aggression?

The big banks are gearing up for an aggressive buyback season.

We’ve recently learned that CitiGroup and Wells¬†Fargo¬†have set aside their largest reserves to date to cover new “repurchase” issues. Many expect insistent demands to rain down from Fannie and Freddie, as the mortgage giants face looming statute of limitations cut-offs for such claims.

But what should the big banks’ large piles of cash signal to originators?

To be sure, some money will cover legal fees, but will the big banks direct their lawyers to defend against Fannie and Freddie, or will they turn their lawyers’ focus downstream with even more aggression towards originators?

As we frequently point out to the big banks, before ever seeking “repurchase” from originators, they have an affirmative duty to seek to avoid or mitigate any loss relating to repurchase demands from their own investors. It is our hope that their legal reserves will be spent wisely refuting the GSEs’ claims, rather than just passing such claims through to originators. If the big banks don’t defend against the coming onslaught of demands, it may ultimately be their losses to swallow.

As originators continue to learn their rights and the many strong defenses available against “repurchase” demands, the big banks can no longer simply assume that originators will, in the banks’ view, “fall in line.”

RELATED PEOPLE
Philip R. Stein

Philip R. Stein

Partner, Litigation Practice Group Leader
YOU MIGHT ALSO LIKE
Financial Services Watch Blog December 17, 2020
One would think that, as we approach 2021, litigation related to residential mortgage loans originated and sold well over a decade ago would be ancient history. Nevertheless, some suits filed years ago remain active, and, even more surprisingly (and disturbingly), new lawsuits related to loans sold ...
Publication December 8, 2020
The economic havoc wreaked by COVID-19 may have the knock on effect of a wave of Commercial Mortgage-Backed Securities (CMBS) litigation, mirroring the deluge of Residential Mortgage-Backed Securities (RMBS) litigation following the 2008 financial crisis. 
VIEW MORE