Sen. Al Franken, D-Minn., got a boost to a bill he introduced last month that could eliminate repurchase risk for banks choosing to refinance Fannie Mae and Freddie Mac mortgages.
The Mortgage Bankers Association sent a letter to Franken Tuesday endorsing the bill.
The Helping Homeowners Refinance Act would direct the Federal Housing Finance Agency to prohibit Fannie and Freddie from holding any investment that could prevent a loan from refinancing. The bill was filed in response to a ProPublica report on a controversial “inverse floater” allegedly keeping Freddie from approving some workouts.
Also in the bill, the GSEs would hold all financial institutions to the same repurchase and warranty risk of a loan being refinanced, regardless if it originated the original mortgage or not.
The policy, if enacted, would apply to only to loans with a resettlement date on or before May 31, 2009.
“We believe standardizing the loan repurchase policies of these government-sponsored enterprises (GSEs) will provide some clarity to lenders regarding their repurchase obligations,” wrote MBA CEO David Stevens in the letter. “We also believe requiring the policies to be applied consistently to all lenders provides certainty with respect to enforcement.”
In November, the FHFA removed several barriers keeping some underwater borrowers from refinancing into a lower rate. Representation and warranty risk was only partially lifted as part of the changes to the Home Affordable Refinance Program.
The big-four banks hold more than $21 billion combined in reserves for buying back mortgages sold to the GSEs, according to investment bank Keefe, Bruyette & Woods.
Friction between the banks and the GSEs over repurchase claims boiled over last year. Fannie Mae decided to end its contract with Bank of America because the lender was taking too long in processing claims the bank said were unfounded based on a recent agreement between the two.
Stevens asked Franken to go a step further with his bill and force FHFA to set “clear, consistent and transparent” procedures.
“This added level of certainty in the lending environment will foster liquidity that is needed not just for mortgages, but for all sorts of lending that helps drive investment in the economy and creates jobs,” Stevens wrote.
