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Mortgage Professionals Should be Optimistic About the Future

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Th e M Rep o RT | 61 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest Fannie, Freddie tweak mortgage repurchase requirements GSes and their conservator expect changes to ease lenders' concerns and make credit more accessible for consumers. a t the direction of the Federal Housing Fi- nance Agency (FHFA), both Fannie Mae and Freddie Mac announced updates to their life-of-loan representa- tion and warranty framework in order to provide clarity for lenders regarding the potential risk for repurchase. The clarification of life-of-loan exclusions announced by the GSEs is meant to provide more certainty to lenders and borrow- ers alike, which will "increase access to credit without compro- mising safety and soundness," ac- cording to a prepared statement by FHFA Director Mel Watt. "The release of details ... clarify- ing the definition of life-of-loan exclusions and when they apply is a positive step forward for housing finance," Watt said in his statement. "Concerns about when a mortgage loan might be subject to repurchase, along with other market factors, have contributed to increased credit overlays that drive up lending costs and reduce access to credit." For Fannie Mae, the new guidelines provide specific requirements under which a repurchase can be pursued after lenders are granted relief from certain reps and warranties. One particular clarification made in the latest update relates to mis- representations or data inaccura- cies that surface post-relief date. Fannie Mae will seek repur- chase on these loans only after administering a "significance test" to determine if the GSE would not have purchased the loan in the first place had the misrepre- sentations or inaccuracies been known prior to the relief date. Currently, lenders are granted relief on many representations if one of three requirements is met: • The borrower makes timely payments on most loans for 36 months. • The borrower makes timely payments on Home Affordable Refinance Program (HARP) or Refi Plus loans for 12 months. • The loan passes a quality control review administered by Fannie Mae. Fannie Mae also announced it will seek repurchase on a loan either before or after relief is obtained under the framework if "it determines the failure to comply would impair its rights under the note or mortgage or result in direct liability by Fannie Mae under the law, or if the lender may have violated a consumer protection or other law or regulation that is spe- cifically listed in [the GSE's] announcement." "The clarity and certainty we're providing ... is crucial for lend- ers to increase access to mortgage credit," said Andrew Bon Salle, EVP of single-family underwriting, pricing, and capital markets for Fannie Mae. "There are quali- fied borrowers who are not being served in today's market. With this clarity, lenders should have greater confidence in lending to Fannie Mae's full credit standards and making mortgages available to more borrowers." Freddie Mac announced it will implement a similar "significance test" in order to protect the enter- prise against fraud, misrepresenta- tions, or data inaccuracies. Freddie Mac also announced the updates will be retroactive to mortgages that settled on or after January 1, 2013. In addition, Freddie Mac will be updating the "compliance with law" definition in its Selling Guide in order to "provide more certainty on how Freddie Mac will enforce remedies for compli- ance with laws." Dave Lowman, EVP of single- family business at Freddie Mac, said the guidance "goes a long way in providing clarity and certainty to lenders as to when a loan will be subject to a repurchase." According to Lowman, "Lenders have been specifically concerned that the life of loan exclusions could undermine the selling representation and warranty relief, leaving a back door for the GSE to put loans back to them after granting relief. Addressing these concerns by providing tighter definitions and clarity should encourage sell- ers to serve a broader range of qualified borrowers." "There are qualified borrowers who are not being served in today's market. With this clarity, lenders should have greater confidence in lending to Fannie Mae's full credit standards and making mortgages available to more borrowers." —Andrew Bon Salle, Fannie Mae.

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