Federal Housing Finance Agency FHFA United States Washington DC

Regarding lenders’ vociferous complaints about increased loan buybacks from Fannie Mae and Freddie Mac, FHFA Director Sandra Thompson said the regulator expects originators to deliver loans consistent with the guidelines. But, she added, the Enterprises must implement a fair, consistent, and predictable process for identifying loan defects and the appropriate remedies.

“After multiple years of record-high loan volume, we have seen an increase in the absolute number of repurchase requests – which is to be expected,” Thompson said at the Mortgage Bankers of Association conference in Philadelphia on Monday. “The good news is that there has been a large decrease in repurchase requests since their peak in early 2022, as the Enterprises have worked through loans originated during the refinance boom.”

Thompson said Fannie Mae and Freddie Mac have closely examined their existing processes and practices, including efforts to improve language in the selling guidelines and provide more consistent feedback to lenders on buybacks. The goal is to lead to less ambiguity in underwriting.

In addition, the FHFA is open to additional options that would ensure alternatives to repurchases are available and offered regularly. However, “work on this front remains ongoing,” according to Thompson.

“While many of the details remain in development, we are considering initiatives to test and learn from various options for performing loans with defects,” Thompson said. “Taken as a whole, we believe these are meaningful improvements to uphold quality control while ensuring high-quality underwriting.”

Freddie Mac on Monday said its research shows that purchase mortgages have 35% more incidence of defects than refinancings. It cited loans missing key documents or those with inaccurate income calculations as the top factors.

“To address these issues, Freddie Mac committed to enhance our communication, collaboration and feedback with our lenders and industry partners. We also committed to enhancing our own processes. We did both, and it is working,” the GSE said in a prepared statement Monday. “Non-Acceptable Quality rates on our incoming loans are approximately 30% lower than their peak. With it, repurchase requests are trending down to approximately 60% lower than their peak. Within that 60%, repurchase requests to vitally important small and community lenders are even lower, down 68%.”

Freddie said it has made strides for three reasons: because loan file quality from lenders has improved; the GSE itself has improved the quality control review function; and Freddie has also advanced policy changes “that will minimize instances where judgment must be applied in the underwriting process.”

In a statement following Thompson’s remarks on Monday, the MBA said it has “advocated strongly” for FHFA to address the rise in loan repurchase requests, especially for performing loans and those with relatively minor issues underwritten during the pandemic.

“We share FHFA and the GSEs’ goal of high-quality underwriting and will continue to work with them to ensure the rep and warranty framework is being applied in a balanced way, and that there are appropriate alternatives that lead to outcomes short of a repurchase request.”

Another trade group, the Community Home Lenders Association, weighed in on Thompson’s remarks.

“More balance in repurchase demands is needed to reduce disincentives for lenders to originate mortgage loans to underserved borrowers,” said Scott Olson, the group’s executive director. “It is also necessary to avoid steep and unnecessary losses lenders are experiencing from selling off performing loans in a market with skyrocketing mortgage rates.”

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