Fannie Provides Key Details on Relief from Loan Buybacks

BOSTON — Fannie Mae is planning to provide relief to lenders from potential buybacks for loans in which the borrower's income, assets and employment information have been validated through automated underwriting.

The government-sponsored enterprise will also provide relief on appraisals if the underlying property receives a qualifying score when reviewed by Collateral Underwriter, its program designed to evaluate the risk posed by an appraisal. Loans that receive a score of 2.5 or lower on the five-point scale will be eligible for relief.

The changes to Fannie's representation and warranty measures are being made to provide greater assurances to lenders that the GSE will not seek to buyback the loan if it defaults.

"You can have much greater confidence that when you sell us a loan…it won't boomerang back," said Tim Mayopoulos, Fannie Mae's president and chief executive officer, at the Mortgage Bankers Association's annual convention on Monday.

Additionally, Fannie is expanding access to a waiver from a property inspection requirement for refinance transactions that are automatically underwritten.

Some rep and warranty relief takes effect immediately, including on income verification. Asset and employment verification for certain Collateral Underwriter scores is scheduled to start on Dec. 10, as is expanded property inspection waiver eligibility.

Freddie Mac is also gearing up to offer rep and warranty relief in exchange for use of its Loan Advisor Suite tools. The GSE said its plans include expanding collateral rep and warrant relief currently being tested to sometime in early 2017.

Around that time, Freddie also plans to introduce a no-cost appraisal alternative, and provide automated assessments of borrowers who lack credit scores.

The Federal Housing Finance Agency, meanwhile, is continuing to push lenders to cut back on the extent they add overlays that tighten the credit box on loans they sell.

The market is "not yet supporting access to credit for the full spectrum of creditworthy borrowers," said FHFA Director Mel Watt.

Lenders are still gun-shy about lending too broadly due to the pain they suffered in the wake of the financial crisis due to repurchases by the GSEs, despite the fact that loan performance and operational quality have improved, and buybacks are much rarer.

Reps and warrants remain a liability concern for lenders, but the number of loan buybacks has dropped so significantly it's become much less of one, said Tom Millon, president and CEO of the Capital Markets Cooperative, a subsidiary of Computershare.

"There's very little in the way of repurchases now," he said.

Despite this, lenders remain concerned that the problem could recur if the market comes under stress again.

"There's still a big trust issue with the GSEs about what happens in the next crisis," said Andrew Bon Salle, an executive vice president at Fannie Mae
Some lenders said they were interested in the rep and warrant relief but wanted time to digest it before using it.

"It may change the way we review loans," said David Sheeler, an executive vice president of Freedom Mortgage's correspondent and servicing finance unit, but added that he wanted to study it further before saying for sure.

Rep and warrant relief is limited to the particular data point validated by the tool as opposed to the loan as a whole, and there are some "life of loan" reps and warrants that remain in place even after the relief is applied.

As the Collateral Underwriter score cut-off suggests, there will also be some loans that don't qualify for the immediate rep and warrant relief the GSEs will be offering. Vanilla mortgages are the ones most likely to be eligible.

"It could help cookie-cutter loans," said Lisa Binkley, a senior vice president at Platinum Data Solutions.

That could give lenders more time and confidence to possibly go after the agency loans further down the credit spectrum that Watt would like to see them make.

"That frees up lenders to pursue those other alternatives," said Les Parker, a senior vice president at LoanLogics.

 

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