WASHINGTON – Fannie Mae and Freddie Mac unveiled an appeals process Tuesday that will allow an independent arbitrator to resolve disputes between lenders and the government-sponsored enterprises over loan repurchase demands.

The new independent dispute resolution process, which was approved by the Federal Housing Finance Agency and endorsed by the Mortgage Bankers Association, is an effort to provide lenders more certainty that they won't later face costly repurchase requests if a loan goes bad.

"A final decision by the arbitrator will avoid the possibility that a dispute might languish unresolved for an extended period of time as has often occurred in the past," FHFA Director Mel Watt said in a press release. "IDR is the final part of the Representation and Warranty Framework which, taken as a whole, will increase clarity for lenders and will ultimately increase access to mortgages for creditworthy borrowers."

The process will be available for whole loans purchased and mortgage loans delivered into mortgage-backed securities pools this year, according to the GSEs.

"The IDR process provides is specifically designed to address alleged loan-level breaches of selling representations or warranties that remain unresolved after completion of an appeals process," the enterprises wrote in a notice to lenders.

Fannie had $812 million in loan repurchase demands outstanding as of Sept. 30, compared with $2 billion in the third quarter of 2014.

But it was a much larger problem back in 2010. Federal Deposit Insurance Corp. data shows banks repurchased $10.7 billion in mortgage loans in the second quarter of 2010. In the third quarter of 2015, bank repurchases totaled $805 million.

Lenders tightened their underwriting standards and imposed overlays to deal with the uncertainty regarding which loans the GSEs and other investors would target for repurchase.

"FHFA, Fannie Mae and Freddie Mac should be commended for their work over the last four years on the representation and warrant framework," said David Stevens, president and chief executive of the Mortgage Bankers Association.

"The independent dispute resolution process is an important final piece to this effort. In its totality, the representation and warranty framework will provide much needed certainty and transparency for lenders of all sizes and help broaden access to credit for borrowers."

Andrew Bon Salle, an executive vice president at Fannie Mae, said the GSEs have worked to clarify their policies and guidelines with respect to representations and warranties.

"Our intention has been to ensure lenders can lend with confidence knowing that if they originated to Fannie Mae guidelines their risk of repurchase has been minimized," he said. "Many lenders have told us that our efforts are paying off, and that they are more comfortable lending to the full credit box of our guidelines."

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