Fannie Mae and Freddie Mac announced changes in the terms under which they would require mortgage loans to be bought back by the originator. The life-of-loan exclusions have been narrowed to give originators more predictability about whether they will be required to repurchase a loan. The new terms take effect immediately and apply retroactively to loans sold since Jan. 1, 2013, that have not been subject to a buyback.
In cases of misrepresentations, misstatements or omissions, the GSEs will determine whether the lender has made three or more loans to the GSE with a common pattern of activity and whether the misrepresentation is significant enough that the GSE would not have initially bought the loan. Only if all these conditions are met will the GSE require repurchase.
Likewise, in cases of inaccurate data, the GSEs will determine whether the inaccuracies affect at least five loans whose data differs from that in the lender’s files and whether the inaccuracy is significant enough. The GSEs may also reprice the loan based on more accurate information rather than require a buyback.
If Fannie and Freddie determine a lender failed to comply with relevant laws, they will seek repurchase only if the compliance failure impairs the GSEs’ ability to enforce the mortgage, results in liability for the GSE or violates consumer protection rules.
Lenders are generally protected from buybacks if the borrower stays current for the first three years of the loan — or for one year under certain refinance programs — and if the loan passes Fannie or Freddie’s quality review. Yesterday’s changes clarify exceptions to that rule that would expose banks to potential buybacks for a loan’s entire duration.
Read Fannie’s bulletin.
Read Freddie’s bulletin.