Fannie Mae and Freddie Mac will not require lenders to automatically repurchase loans that experienced early payment defaults, HousingWire reported Oct. 19. The announcement reversed a key provision in the government-sponsored enterprises’ new representation and warranty structure.
The new representation and warranty guidelines were announced Sept. 11 by the Federal Housing Finance Agency and are scheduled to take effect Jan. 1, 2013.
Both Fannie Mae and Freddie Mac sent letters to lenders stating that “upon further review, it has determined that the automatic repurchase trigger will not be implemented.”
Previously, the GSEs said that early payment defaults would automatically trigger a repurchase request regardless of how well the loan was documented. An early payment default occurs when a borrower misses a payment within the first three months of the loan, HousingWire reported.
Under the new rules, the GSEs would have the ability to force a lender to buy back loans that violated certain representations in an effort to relieve pressure on some lenders. However, questions remained as to how the changes would affect the mortgage market, as buyback fears often are cited by lenders as the key reason fewer loans are being made.
Aside from mentioning the change in repurchase requests, the letters sent to lenders also explained key repurchase alternatives that the GSEs could offer lenders, including indemnification and loss sharing, and warned lenders to expect more loan reviews. The letters also noted that the sampling of performing loans for rep and warranty review “will likely increase in aggregate across all loans and lenders,” HousingWire reported.