Fannie and Freddie Will Issue Major ‘Rep & Warranty’ Relief in New Policy

Come Tuesday morning Fannie Mae and Freddie Mac will issue their seller/servicers relief from onerous ‘representation and warranty’ clauses on loans the GSEs purchase—with particular emphasis on mortgages that are current for at least 36 months.

A formal announcement is expected early in the morning, but will only affect mortgages sold to the agencies after yearend 2012.

According to prepared remarks from Federal Housing Finance Agency acting director Edward DeMarco, the GSEs will shift their due diligence “earlier in the loan process, generally between 30 to 120 days” after Fannie/Freddie purchase a mortgage from a seller/servicer.

He adds, “The objective of the new framework is to clarify lenders’ repurchase exposure and liability on future deliveries. Under this framework, lenders will be relieved of certain repurchase obligations for loans that meet specific payment requirements.”

Released Monday night, DeMarco’s written remarks before the American Mortgage Conference in Raleigh, N.C., spell out where the agency is headed on the Fannie/Freddie policy changes.  

The regulator notes that for the housing and mortgage markets to “reclaim the strength it once had…it is vital we consider ways to improve the representation and warranty model.”

For three years now, Fannie and Freddie have been forcing dozens of their largest customers to either buy back delinquent loans–or compensate them for financial damages.

Several lenders have racked up billions of dollars in reserves to cover potential GSE claims, taking a bite out of their mortgage banking earnings.

In particular, squabbles over buybacks between Fannie and Bank of America have ended the working relationship between the two parties except on certain HARP refinancings.

Back in mid-August National Mortgage News first reported that a change in buyback language was coming to the industry.