For about a year, mortgage bankers have complained that Fannie Mae and Freddie Mac have increased their requests that lenders buy back loans.

The Mortgage Bankers Association attributes the increase to poorly performing affordable-housing loans, as well as the agencies' use of credit scoring to weed out potentially riskier loans.

Fannie, formally the Federal National Mortgage Association, announced last week that it would no longer ask high-quality lenders to buy back performing loans.

In an interview with American Banker, Michael Stamper, executive vice president for risk management at Freddie Mac, the Federal Home Loan Mortgage Corp., said his agency has had a similar policy in place since September. He explained how his agency reviews loans for possible repurchase.


Mortgage bankers say you have been going over seasoned loans that are still performing, running them through your scoring models, and asking lenders to buy back low-scoring loans.

STAMPER: No. Absolutely not.

Tell me what's wrong with this description.

STAMPER: I'll go back now (to) before we made the changes to the program (in September.) For loans we had recently purchased, we'd review a sample of these loans, and make a determination whether the loan was investment quality or not. And if it wasn't, (we'd) ask for a repurchase.

With older loans, if the loan was going into default, we would review those loans, and we would use the standards applicable when the loan was purchased. We weren't going back and retroactively using any of our credit- scoring expertise.

Why did lenders feel buyback requests had grown more frequent?

STAMPER: Two things were occurring. First, at the end of the refinance boom, we saw credit quality slip. Second, we improved the way that we were selecting loans to review, (using) the credit scoring expertise that we have. Not surprisingly, underwriters more frequently found loans that were not investment quality. Credit-scoring expertise wasn't used to make a decision on the loan.

But lenders were unhappy?

STAMPER: Right. So the way we addressed it was (that) those customers we had a high level of confidence in we relieved of the burden of repurchases on performing loans. We still review the loans, (but) we tell them what we think of the loans. We don't ask for repurchase.

If those loans go into default, they could still be subject to review for egregious violations of our underwriting requirements. And that sounds a bit like what Fannie Mae is saying.

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