Banking Law

Hard To Pick A Favorite

Shortly before New Years Day, Housing Wire broke the story that the FDIC's negotiations to sell most of IndyMac to a consortium of Wall Street sharks private equity funds was being held up by mortgage loan buyback demands made by Fannie Mae. While one source stated that Fannie Mae often had a hard time truly sticking it to large loan originators because Fannie didn't want to spank the source of the loans it needed to purchase in order to have a reason to exist, that argument flew in the face of my personal experiences with Fannie Mae. Fannie's generally a hard case when it comes to a breach of warranties, and traditionally gets its way in these matters. I couldn't see that it would back off an opportunity to use the FDIC's desire to unload IndyMac by year end as a wedge to enforce a hefty repurchase.

Nevertheless, on January 2, the FDIC announced that it had cut a deal to sell IndyMac, and, according to The American Banker (paid subscription required), the FDIC claimed that Fannie Mae's demand to repurchase as much as $1 billion in loans did not cause a delay in the bidding process. However, the FDIC also said that it continued to negotiate the repurchase issue with Fannie Mae. That leads me to conclude that the FDIC is taking the whack for the Fannie Mae claim and indemnifying the acquirers against liability for the same. That's a pure guess, but a not entirely unreasonable one.

I suppose some might receive some perverse pleasure from seeing two government entities causing one another the kind of aggravation they usually inflict on private market participants.  Being the new, improved version of bank lawyers who toil in the Era of The Change We Have Been Waiting For, we wish nothing but the best for our brethren in the trenches at both Fannie and the FDIC who must slash, thrust and parry until the inevitable settlement is reached. From a banker's perspective, you know that the more money the FDIC loses, the higher your premiums. Therefore, in this particular battle, you have to root for the FDIC.

It's interesting that first JPMorgan Chase slugs it out with Freddie Mac over a buy-back request (in that case due to alleged defaults by Wamu, which JPMorgan chased purchased in an FDIC-assisted deal) and now the FDIC tells Fannie Mae that it won't roll over and play dead when a similar demand is made. This is starting to resemble "The Godfather," when Don Corleone goes "squishy" in his support for drug dealing and the rest of the Mafia godfathers try to off him. In big business and politics, as in organized crime, perceived weakness can prove fatal. Therefore, we'll be interested to see how all of this plays out.

The following is an exclusive video obtained by Bank Lawyer's Blog of the most recent FDIC-Fannie Mae negotiating session. The FDIC negotiators are the guys in black coats. The FDIC's chief negotiator, a man named "Doc," tends to be a hard case, and, as you can tell, the negotiations did not go well, especially for Fannie, which appears to have been spanked rather violently.

Full post as published by Bank Lawyers Blog on January 05, 2009 (boomark / email).