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Edward DeMarco, acting director of the Federal Housing Finance Agency, said Monday the agency will unveil a new representation and warranties model for conventional loans to help minimize risk exposure to lenders.
September 10 -
Investors and analysts cheered SunTrust's decision to boost reserves for Fannie and Freddie repurchases, prompting speculation that other lenders could follow suit.
September 7
WASHINGTON — The Federal Housing Finance Agency said Tuesday that Fannie Mae and Freddie Mac are pursuing a new representation and warranties model for conventional loans to help minimize risk exposure for lenders.
The new framework will apply to conventional loans sold or delivered on or after Jan. 1, 2013. The agency is hoping that the new framework, part of a broader series of initiatives called seller-service harmonization, will alleviate lenders' concerns about their exposure to putbacks.
"Ultimately, better quality loan originations and underwriting, along with consistent quality control, help maintain liquidity in the mortgage market while protecting Fannie Mae and Freddie Mac from loans not underwritten to prescribed standards," Edward DeMarco, acting director of FHFA said in a press release. "These efforts contribute to a firm foundation for a new, sustainable housing finance system for the future."
Under the new framework, lenders will also be relieved of certain repurchase obligations for loans that meet specific payment requirements. For example, relief will be offered on loans with 36-months of consecutive, on-time payments.
Lenders that are participating in refinance programs, including the Home Affordable Refinance Program, will be able to see relief after an "acceptable" payment history of one-year after acquiring the loan.
Fannie Mae and Freddie Mac will also continue efforts to provide lenders with an array of tools to help improve loan quality.
According to FHFA, the new model will move the quality control reviews to the time a loan is delivered to Fannie or Freddie as opposed to when a loan defaults.
A review by the agency showed that past repurchase requests issued by the enterprises were based on substantive underwriting and documentation deficiencies — leading to substantial losses to Fannie, Freddie and ultimately, the taxpayer.
Under the new standards, quality control reviews by Fannie and Freddie will occur earlier in the loan process, typically between 30 to 120 days after the loan purchase.
Fannie and Freddie will also establish consistent timelines for lenders to submit requested loan files for review and will evaluate each loan with a focus on finding deficiencies.
They will also evaluate loan files with a key focus on identifying deficiencies and leverage already used tools by Fannie and Freddie to identify potentially defective loans earlier.
