Fannie Mae will buy 97% LTV mortgages

Credit improvements lead to mortgage product

Fannie Mae CEO Timothy Mayopoulos said the government-sponsored enterprise will soon begin offering a 97% loan-to-value mortgage.

Speaking at the Mortgage Bankers Association Annual Convention & Expo, Mayopoulous said the government-sponsored enterprise is working “closely” with the Federal Housing Finance Agency to offer this product to all Fannie associates.

He said increased underwriting quality and improving representations and warranties will allow Fannie to buy these loans.

"We now we can safely and responsibility do these loans…we reduced the layering of risk," Mayopoulos said.

Fannie Mae does not lend mortgages, but rather securitizes the loans into the secondary mortgage markets.

“Under our new rep and warrant framework we are reviewing more loans closer to delivery," Mayopoulos said.

Mayopoulos said his firm repurchased only 8,200 out of 2.7 million recent loans.

And when Fannie gives lenders time to correct any outstanding issues, a buyback is unnecessary in most circumstances.

"At Fannie Mae we are focused on serving you," he told the crowd of mortgage bankers, "and looking forward to serving you in the future."

The announcement builds upon FHFA Director Mel Watt's speech from earlier in the day on Monday, when said that the FHFA was clarifying the Representations and Warranty Framework to help reduce repurchases.

"We know that the Representation and Warranty Framework did not provide enough clarity to enable lenders to understand when Fannie Mae or Freddie Mac would exercise their remedy to require repurchase of a loan, Watt said. "And, we know that this issue has contributed to lenders imposing credit overlays that drive up the cost of lending and also restrict lending to borrowers with less than perfect credit scores or with less conventional financial situations."  
Watt also touched on the prospect of the 97% LTV ratio in his speech. 
"To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the Enterprises to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97%," Watt said.
"Through these revised guidelines, we believe that the Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account 'compensating factors.' While this is a much more narrow effort than our work on the Representation and Warranty Framework, it is yet another much needed piece the broader access to credit puzzle. Further, details about these new guidelines will be available in the coming weeks as we continue to advance FHFA’s mission of ensuring safety, soundness and liquidity in the housing finance markets.”

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