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THE BUST 

eration. Sometimes, if the reasons for ineligibility were sufficiently minor, the loans
were not put back.
Overall, of the delinquent loans and loans in foreclosure sampled by Freddie, 
were put back. In  and , Freddie put back significant loan volumes to the
following lenders: Countrywide, . billion; Wells Fargo, . billion; Chase Home
Financial, . billion; Bank of America,  million; and Ally Financial,  mil-
lion. 
Using a method similar to Freddie’s to test for loan eligibility, Fannie reviewed be-
tween  and  of the mortgages originated since —sampling at the higher
rates for delinquent loans. From  through , Fannie put back loans to the fol-
lowing large lenders: Bank of America, . billion; Wells Fargo, . billion; JP Mor-
gan Chase, . billion; Citigroup, . billion; SunTrust Bank,  million; and
Ally Financial,  million. In early January , Bank of America reached a deal

with Fannie and Freddie, settling the GSEs’ claims with a payment of more than .
billion. 
Like Fannie and Freddie, private mortgage insurance (PMI) companies have been
finding significant deficiencies in mortgages. They are refusing to pay claims on some
insured mortgages that have gone into default. This insurance protects the holder of
the mortgage if a homeowner defaults on a loan, even though the responsibility for
the premiums generally lies with the homeowner. By the end of , PMI compa-
nies had insured a total of  billion in potential mortgage losses. 
As defaults and losses on the insured mortgages have been increasing, the PMI
companies have seen a spike in claims. As of October , the seven largest PMI
companies, which share  of the market, had rejected about  of the claims (or
 billion of  billion) brought to them, because of violations of origination
guidelines, improper employment and income reporting, and issues with property
valuation. 
Separate from their purchase and guarantee of mortgages, over the course of the
housing boom the GSEs purchased  billion of subprime and Alt-A private-label

securities. The GSEs have recorded  billion in charges on securities from Janu-

ary ,  to September , . Frustrated with the lack of information from the
securities’ servicers and trustees, in many cases large banks, on July , , the
GSEs through their regulator, the Federal Housing Finance Agency, issued  sub-
poenas to various trustees and servicers in transactions in which the GSEs lost

money. Where they find that the nonperforming loans in the pools have violations,
the GSEs intend to demand that the trustees recognize their rights (including any
rights to put loans back to the originator or wholesaler). 
While this strategy being followed by the GSEs is based in contract law, other in-
vestors are relying on securities law to file lawsuits, claiming that they were misled by
inaccurate or incomplete prospectuses; and, in a number of cases, they are winning.
As of mid-, court actions embroiled almost all major loan originators and
underwriters—there were more than  lawsuits related to breaches of representa-

tions and warranties, by one estimate. These lawsuits filed in the wake of the finan-
cial crisis include those alleging “untrue statements of material fact” or “material