The Federal Housing Finance Agency (“FHFA”) has directed Fannie Mae and Freddie Mac (“GSEs”) to limit their future mortgage loan acquisitions to loans that meet the requirements for a “qualified mortgage” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Separately, the FHFA’s directive issued on May 2 will allow the GSEs to acquire mortgage loans that meet the special or temporary qualified mortgage requirements under the CFPB’s rule that implements the “ability-to-repay” provisions of the Dodd-Frank Act as well as mortgage loans that are exempt from the ability-to-repay rule. The ability-to-repay rule will become effective on January 10, 2014, so the GSEs will not be allowed to purchase any loan with an application date on or after January 10, 2014 if the loan is subject to the ability-to-repay rule and does not meet the requirements for a qualified mortgage. Effectively, this means that the GSEs will not purchase negative amortization or interest-only loans, loans with terms longer than 30 years, or loans with points and fees in excess of 3% of the total loan amount or such other limits on points and fees on certain low-balance loans as are set forth in the ability-to-repay rule. The ability-to-repay rule generally requires lenders, including banks, to make a reasonable, good faith determination of a consumer’s ability to repay before originating a home mortgage loan and establishes certain protections from liability for qualified mortgages.
Nutter Notes: The GSEs issued statements on the FHFA directive on May 6 clarifying that they will continue to purchase mortgage loans that meet the underwriting and delivery eligibility requirements (such as existing debt-to-income ratios, loan-to-value ratios and reserves) stated in their respective selling guides. This includes loans that are processed through their automated underwriting systems. The GSEs said that they will initially rely on lender representations and warranties that loans are qualified mortgages, and will phase in a process to collect and assess data to assist in validating whether the loans actually meet the qualified mortgage criteria. The GSEs said that they currently intend to continue purchasing loans that qualify under certain programs intended to facilitate refinancings for consumers at risk of delinquency or default (specifically, Refi PlusTM, DU Refi PlusTM, and Freddie Mac Relief Refinance MortgagesSM) and loans sold under written negotiated exceptions to their respective seller guides. The CFPB has opted not to adopt a proposed exemption to the ability-to-repay rule for such GSE refinancing programs. The GSEs said that they would monitor the impact of the ability-to-repay rule and determine whether additional changes should be made to underwriting and eligibility requirements, pricing, file review processes, repurchase requirements, or the overall representation and warranty framework as a result of the rule.