The Federal Housing Finance Agency announced Tuesday morning that Fannie Mae and Freddie Mac are changing their loan purchasing rules to establish an independent third-party review process for loans that trigger a repurchase request due to perceived violations of the government-sponsored enterprises' representation and warranty framework.
The FHFA, Fannie Mae and Freddie Mac announced Tuesday that they are implementing an independent dispute resolution process for resolving repurchase disputes, completing the planned scope for the selling representation and warranty framework.
The FHFA, Fannie Mae, Freddie Mac and others suggest that these changes should make it easier for lenders to lend with confidence.
The new process allows lenders to submit unresolved loan-level disputes to a neutral third party arbitrator after the appeal and escalation processes have been exhausted, the FHFA said in its release.
"The IDR process provides the enterprises and lenders a mechanism for resolving a repurchase dispute and avoiding the possibility that a dispute might languish unresolved for an extended period of time as has often occurred in the past," said FHFA Director Melvin Watt.
"IDR is the final part of the Representation and Warranty Framework which, taken as a whole, will increase clarity for lenders and will ultimately increase access to mortgages for creditworthy borrowers,” Watt said.
According to the FHFA, representations and warranties are a lender’s assurance that a mortgage loan sold to Fannie Mae or Freddie Mac complies with the standards outlined in the enterprise’s selling and servicing guides, including underwriting and documentation. When mortgages don’t comply, the enterprises may require remedies, including issuing a repurchase request.
But now, the process involving a repurchase request has a new, independent step for resolving disputes.
David Stevens, president and CEO of the Mortgage Bankers Association, said that these new rules will help "broaden access to credit for borrowers" by providing lenders with more clarity about how Fannie and Freddie will handle repurchase requests.
"FHFA, Fannie Mae and Freddie Mac should be commended for their work over the last four years on the representation and warrant framework," Stevens said.
"The independent dispute resolution process is an important final piece to this effort," Stevens continued. "In its totality, the representation and warranty framework will provide much needed certainty and transparency for lenders of all sizes and help broaden access to credit for borrowers. MBA is glad to have contributed to this initiative and we look forward to continuing to work with FHFA, the GSEs and other stakeholders in helping to create a sustainable lending environment that reasonably expands credit for all borrowers interested in the home buying process."
The FHFA listed “complete the independent dispute resolution process in support of the Representation and Warranty Framework,” in its 2016 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions.
Freddie Mac said that this process will be available for all mortgages with settlement dates on and after Jan. 1, 2016.
Fannie Mae said the process will be available for whole loans purchased, and mortgage loans delivered into MBS with pool issue dates, on and after Jan. 1, 2016.
“This latest step provides a clear, reliable and independent process to resolve disagreements over repurchase requests in a timely fashion when needed. We believe we’ve created a system that addresses our customers’ concerns,” said Andrew Bon Salle, executive vice president, single-family business with Fannie Mae. “We’ll continue to work closely with our customers to drive simplicity and certainty in all aspects of our business.”
Donna Corley, senior vice president, division chief risk officer, single-family with Freddie Mac, commented on the news saying: "Today's announcement finishes a four-year process to give our lenders a simpler, clearer, and more certain representations and warranties framework for originations.”
Corley said that this process empowers lenders to refer these disputes to a neutral third party for a final decision.
"The transformation of the representation and warranties framework was undertaken at the direction of the Federal Housing Finance Agency to Freddie Mac and Fannie Mae," Corley added. "Today's announcement underscores the steady fulfillment of our commitment to work with all stakeholders to strengthen America's mortgage finance system."