FHFA eases buyback policies, with more changes to come

The Federal Housing Finance Agency has changed its loan repurchase policy for the representations and warrants treatment for mortgages with a COVID-19 forbearance.

During her presentation at the Mortgage Bankers Association annual convention in Philadelphia, Sandra Thompson, the agency's director, noted a large reduction in repurchase requests from Fannie Mae and Freddie Mac since the peak in early 2022, as the secondary market caught up from the origination boom.

"We know that a key factor contributing to the severity of this issue is today's higher interest rate environment, in which the losses associated with repurchasing low interest rate loans can be quite steep," Thompson said. "We have also heard the industry's concerns regarding loan defects that may not rise to the materiality necessary to justify a repurchase."

The government-sponsored enterprises, she noted, have clarified the language in their respective seller/servicer guides as well as provide feedback when a repurchase request is made.

Now, FHFA is directing Fannie Mae and Freddie Mac to extend the reps and warrants policies for loans covered by natural disasters to include those that have successfully exited a COVID-19 forbearance plan.

Missed payments during the forbearance period will not make these loans ineligible for the three-year rep and warrant sunset.

"Finally, we remain open to additional options that would ensure alternatives to repurchases are available and offered on a regular basis – and work on this front remains ongoing," said Thompson. "While many of the details remain in development, we are considering initiatives to test and learn from various options for performing loans with defects."

The industry was quick to respond with support for Thompson's announcement.

The MBA supports the work being done to find "appropriate alternatives that lead to outcomes short of a repurchase request," a statement from Bob Broeksmit, president and CEO, said.

"FHFA's policy change to provide rep and warrant relief for performing seasoned loans that have successfully exited COVID-19 forbearance plans is a longstanding recommendation that we are pleased to see implemented."

The Community Mortgage Lenders of America, whose membership base is primarily small- and mid-sized lenders, concurred.

"More balance in repurchase demands is needed to reduce disincentives for lenders to originate mortgage loans to underserved borrowers," the CHLA statement said. "It is also necessary to avoid steep and unnecessary losses lenders are experiencing from selling off performing loans in a market with skyrocketing mortgage rates."

Thompson, playing off of last year's announcement regarding the availability of appraisal data, said the agency will now be making this information available at the individual level, noting limits exist on what could be understood at the aggregate level.

"This data will allow stakeholders to continue to shine a light on the issue of appraisal bias and will allow public users to assess that issue as never before, within the framework of our laws that also support a consumer's right to privacy," Thompson said.

"Accurate valuations and sound appraisal processes are not just fair lending issues; they are safety-and-soundness issues. These issues can either promote or impair public confidence in our housing finance system, so it's important to get them right," she continued.

The MBA supports this as well, noting "the release of appraisal-level records will improve appraisal accuracy while ensuring consumer privacy and safety and soundness."

Also applauding this announcement was the Center for Responsible Lending. "Having access to these data can help regulators, industry participants, fair housing advocates and consumers understand and address housing disparities, and ensure an equitable valuation system that supports sustainable housing finance," said Mitria Spotser, vice president and director of federal policy in a statement.

The U.S. Mortgage Insurers also weighed in, noting, "through the UAD Appraisal-Level PUF, market participants will have greater insight into the government-sponsored enterprises' valuation data and trends to better assist individual mortgage transactions and guide initiatives to promote affordable and sustainable homeownership."