Fitch Ratings believes the new representation and warranty framework from the Federal Housing Finance Agency will potentially have a positive impact on both the mortgage lending and housing markets.
"The new framework places greater emphasis on quality control review processes to be applied when the loans are delivered to Fannie Mae and Freddie Mac government-sponsored entities earlier in the loan process and improves clarity around repurchase requests," the ratings agency said in an email. "Fitch believes that these changes, coupled with improved underwriting processes, could ease lender liability concerns on new loan production and spur broader credit availability."
Mortgage refinancings are big money to banks these days — in an environment where there is not much money going around. However, putback risk is a huge concern. But these changes may put to rest some of those risk fears, Fitch said.
New reps and warrants, however, are only part of the overall trepidation in the larger housing and financial markets.
"Although this proposal would effectively create a lot more clarity for the industry, there are other issues that the banking industry will still contend with, namely the future of housing reform and the GSEs in particular, capital implications related to mortgage servicing rights under Basel III, and regulatory uncertainties related to the Consumer Financial Protection Bureau, which could all act to constrain credit availability, despite greater visibility into repurchase costs in the future," Fitch concludes.