What a difference 18 months can make.

Need an example?

Look no further than recent news from the GSEs that lenders are thumbing their noses at repurchase and reimbursement requests in record numbers.

As reported in their quarterly filings, Fannie Mae and Freddie Mac are seeing an increase in the number of lenders not honoring agreements to repurchase loans that breached representations about the eligibility and quality of loans they sold.

While this is not uncommon in the current economic environment, there is noticeable difference: Lenders have told us that the GSE’s are showing a new toughness when it comes to auditing non-performing loans.

Once a material breach is uncovered, GSEs make a repurchase demand requiring the seller/servicer to buy the loan back from the GSE at par, regardless of the current value or state of pay. In years past, the largest seller/servicers often viewed the repurchase demands made by the GSEs as negotiating tools when it came time to renew or modify contracts.

Back then, the GSEs could be a little light handed in their enforcement of this rule because they didn’t want to risk losing a lender’s loan production and delivery business. Frankly, they didn’t want to lose a lender to the competing GSE.

That was then, this is now. The GSEs now have no choice but to get as strict as possible in enforcing these agreements.

But there’s a catch. Treasury today essentially owns an interest in both GSEs as well as in many of the entities (banks) in the primary market.

Large lenders are most often financial institutions that were required to hold preferred shares of GSE stock as part of their core capital. With those shares virtually worthless, lenders are naturally less sympathetic to the demands made by the GSEs to make them whole on losses. As private enterprises the GSEs could make the business decision to settle their claims with lenders. But with the federal government on both sides of the trade, this becomes an enigmatic situation with no easy solution.

Compensation and penalties enforced by one entity now cause offsetting penalties or compensation to the other. Either way the Treasury comes out on the short end of the deal.

All this is just one example that we’re in for a long haul in our way out of the crisis and into a restructured secondary market.