WASHINGTON — The Financial Stability Oversight Council is encouraging mortgage agencies to continue clarifying when lenders must repurchase defective loans. 

In its annual report released Tuesday, the interagency council praised the work of the Federal Housing Finance Agency and the Department of Housing and Urban Development in their efforts to clear up buyback policies for loans guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration.

"However, loan originators continue to cite uncertainty regarding repurchase requirements as a major driver of their credit policies for GSE and FHA loans, which are often more conservative than these institutions require," the FSOC report says.

The council recommended that FHFA, the Treasury Department, and HUD work with market participants to more clearly define and standardize lender liability and representation and warranty policies.

Industry analysts said FSOC’s encouragement was important.

"The FSOC’s support for additional clarifications of lender liabilities in the mortgage origination process reaffirms our view that policymakers are committed to slowly increasing the flow of mortgage credit," said Isaac Boltansky, a financial analyst for Compass Point. "In the weeks ahead we expect additional changes to the GSEs representation and warranty framework and a clarification of FHA lender endorsement requirements."

One source, who spoke on condition of anonymity, said that FHA is expected to release its new lender endorsement requirements "any day now."

Boltansky expects FHFA Director Mel Watt will unveil an independent lender dispute resolution process this summer.

"I think we get it in a couple weeks or later this summer," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.