The Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac are launching a new framework for the enforcement of representations and warranties applicable to conventional home mortgage loans sold or delivered on or after January 1, 2013. According to the FHFA, the objective of the new framework announced on September 11 is to clarify lenders’ repurchase exposure and liability (the so-called put-back risk) on loans purchased by Fannie Mae or Freddie Mac. The representations and warranties currently required from sellers in loan purchase documents will not be altered under the new framework. However, the FHFA’s new framework will require Fannie Mae and Freddie Mac to conduct quality control reviews earlier in the loan process rather than at the time a loan defaults. Quality control reviews will generally be conducted between 30 to 120 days after loan purchase. Fannie Mae and Freddie Mac will also be required to establish consistent timelines for lenders to submit requested loan files for review, evaluate loan files on a more comprehensive basis to ensure a focus on identifying significant deficiencies, and make available more transparent appeals processes for lenders to appeal repurchase requests. Loans will also be subject to automatic repurchase triggers under the new framework. Any loan for which no scheduled payments were made for the first three months after it is acquired by Fannie Mae or Freddie Mac will be subject to a repurchase request. A seller or servicer may appeal the repurchase request by providing documentation that an extenuating circumstance caused the borrower to default.
Nutter Notes: The new GSE representation and warranty framework will also provide lenders with relief from Fannie Mae’s and Freddie Mac’s enforcement of remedies for breaches of certain representations and warranties, including the obligation to repurchase, for new loan acquisitions that meet specific payment history requirements. For example, lenders will be relieved of repurchase obligations if the borrower has made on-time payments during the first 36 months after Fannie Mae or Freddie Mac acquired the loan, or the borrower was current as of the 60th month with no more than two 30-day delinquencies and no 60-day delinquency during the first 36 months. For Home Affordable Refinance Program (HARP) loans, lenders will be relieved of repurchase obligations if the borrower has made on-time payments during the first 12 months after Fannie Mae or Freddie Mac acquired the loan. To be eligible for representation and warranty relief, the loan also must not have been subject to a forbearance agreement, repayment plan, or otherwise have been modified from its original terms during the first 12, 36, or 60 months, as applicable, based on the acceptable payment history described above. In addition, with the exception of temporary subsidy buy-down arrangements permitted by the loan purchase documents, neither the seller, servicer nor any third party may escrow or advance funds to be used for payment of any monthly installment, principal, interest, or other charge payable under the terms of the loan. Fannie Mae and Freddie Mac are required to provide additional information about exclusions for representation and warranty relief, such as violations of state, federal and local laws and regulations.