NEW YORK — Financial stocks rose Tuesday after federal housing regulators said they were revising guidelines that could reduce lenders' risks of having to buy back soured mortgages that have been securitized.
The Federal Housing Finance Agency released a statement saying it was working with Fannie Mae (FNMA) and Freddie Mac (FMCC), the nation's two major government-backed mortgage securities investors, to "provide lenders a higher degree of certainty and clarity around repurchase exposure and liability as well as consistency around repurchase timelines, incentives and remedies."
The so-called repurchase risk has been a significant overhang on financial shares since the depths of the housing bust, as lenders have had to reserve cash to repay investors in soured loans.
Just last week, PNC Financial Services Group Inc. (PNC) increased the amount it set aside for mortgage repurchases tenfold, to $350 million. The issue has also led to litigation between Bank of America Corp. (BAC) and Fannie Mae over repurchase demands; Bank of America suffered badly from demands to take back bad mortgages because of its purchase of subprime lender Countrywide Financial in 2008.
The Standard & Poors financial stock index rose 2% Tuesday, the second-most of any sector. One of the biggest gainers in the group was Bank of America, which rose 5%.
Bose George, an analyst with Keefe, Bruyette & Woods, said mortgage originators want more clarity over what triggers a buyback request.
"To the extent that [the FHFA] came out with something concrete we think it would be a real positive because so far they haven't actually done anything to help the industry," George said.
