In the aftermath of the housing crisis, Fannie Mae and Freddie Mac issued repurchase requests on nearly $100 billion in mortgages. Not surprisingly, this caused many lenders to look toward the future with uncertainty as to whether repurchases would abate or continue to abound. In the crisis era, the government-sponsored enterprises (GSEs) could at any time in the lifespan of a loan issue a repurchase request as part of their representation and warranty policies, even when a loan had been performing for many years. This created a tremendous amount of pressure on lenders that were unable to estimate and quantify the potential repurchases that would come their way.
Today, however, there’s a new sense of certainty in this regard. The GSEs recently released guidance on a new representation and warranty framework that reduces lenders’ repurchase risk on loans that have performed over an extended period of time. In exchange for this “sunset” provision in the representation and warranty framework, lenders should expect an initial uptick in the number of loan-level quality-control reviews to be conducted by the GSEs within months after a loan’s delivery.
Here’s what you need to know about this new framework and the pressure it relieves.
Under the new framework, mortgage bankers and lenders should know that they may receive loan-file requests as soon as four months after a sale to the GSEs. For loans delivered at the inception of the new representation and warranty framework this past January, that means requests could have begun already for some lenders. Regardless, the GSEs expect all lenders to adhere to the new quality-control review guidelines.
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