Fannie Mae, Freddie Mac Change Representations and Warranties Framework

Freddie Mac Fannie Mae Mortgage Origination Repurchase

On May 12, Fannie Mae and Freddie Mac announced numerous changes to the companies’ representations and warranties framework to expand repurchase relief for lenders. As detailed in Fannie Mae Selling Guide Announcement SEL-2014-05 and Freddie Mac Bulletin 2014-08, effective for whole loans purchase on and after July 1, 2014 and for loans delivered into MBS with pool issue dates on and after July 1, 2014, the companies will provide two separate paths for sellers to obtain relief from representations and warranties: (i) based on the borrower’s acceptable payment history; or (ii) based on a satisfactory conclusion of a quality control loan file review. Relief based on an acceptable payment history will be triggered upon the borrower’s 36th monthly payment, as opposed to the current 60th payment. The announcements also detail payment history relief triggers for each company’s refinance loan products. Relief based on a quality control review will be triggered when the company (i) completes the review of the loan file, which includes a review of the credit underwriting and eligibility of the borrower, the property (including its value), and the project in which the property is located, if applicable, and determines that the mortgage is acceptable; (ii) completes the review and determines the mortgage is not acceptable because of a specific, curable, selling deficiency and the lender cures such deficiency; or (iii) completes the quality control loan file review and determines the mortgage is not acceptable but may be eligible for a repurchase alternative which expires or terminates by its terms. In addition, the companies will no longer automatically require loan repurchase when notified that the primary mortgage insurance has been rescinded. Both announcements provide a chart comparing the new relief triggers to those announced in September 2012, and Fannie Mae and Freddie Mac will soon begin providing lenders with reports listing mortgage loans that met the eligibility requirements for relief. Finally, for certain mortgage loans acquired on and after July 1, 2014, the companies will allow lenders to avoid repurchase for termination of primary mortgage insurance by paying the full mortgage insurance claim amount that would have been payable under the original mortgage insurance policy if the mortgage loan liquidates.