Fannie Mae announced Nov. 20 that it has made changes to its representation and warranty framework intended to provide lenders with greater certainty and clarity around potential repurchase risk.
“The clarity and certainty we’re providing today is crucial for lenders to increase access to mortgage credit,” said Andrew Bon Salle, Fannie Mae’s executive vice president, Single-Family Underwriting, Pricing and Capital Markets. “There are qualified borrowers who are not being served in today’s market. With this clarity, lenders should have greater confidence in lending to Fannie Mae’s full credit standards and making mortgages available to more borrowers.”
Under Fannie Mae’s current framework, lenders are granted relief on many representations and warranties if:
- The borrower makes 36 months of timely payments on most loans;
- The borrower makes 12 months of timely payments on HARP or Refi Plus loans; or
- The loan achieves a successful full-file quality control review by Fannie Mae.
With the new announcement, Fannie Mae is providing specific requirements under which a repurchase could be sought after relief is granted. In particular, the new updates include a significance test for post-relief date repurchases related to misrepresentations or data inaccuracies that is intended to clarify that Fannie Mae only will seek repurchase on these loans if Fannie Mae would not have purchased the loans had it known the accurate information at the time of delivery.
In addition, Fannie Mae is announcing a change to its representation and warranty framework regarding compliance with laws. Under the revised provision, Fannie Mae can seek repurchase of a loan (either before or after it obtains relief under the framework) only if it determines the failure to comply would impair its rights under the note or mortgage or result in direct liability by Fannie Mae under the law, or if the lender may have violated a consumer protection or other law or regulation that is specifically listed in the announcement.
The Nov. 20 announcement resulted from a series of discussions between industry participants, Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. The full description of the new representation and warranty guidelines can be found on Fannie Mae’s website.